2011-472-Board of Regents of the University System of GA Audit

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT)

REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2011

Georgia Department of .Audits and .Accounts

Russell W. Hinton State Auditor


-TABLE OF CONTENTS-

SECTION I

FINANCIAL

INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION

REQUIRED SUPPLEMENTARY INFORMATION

MANAGEMENT'S DISCUSSION AND ANALYSIS

BASIC FINANCIAL STATEMENTS

EXHIBITS

A STATEMENT OF NET ASSETS

B STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS

C STATEMENT OF CASH FLOWS

D STATEMENT OF FIDUCIARY NET ASSETS BOARD OF REGENTS RETIREE HEALTH BENEFIT FUND

E STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS BOARD OF REGENTS RETIREE HEALTH BENEFIT FUND

F NOTES TO THE FINANCIAL STATEMENTS

SCHEDULES


1 SCHEDULE OF FUNDING PROGRESS

SUPPLEMENTARY INFORMATION

2

3

4

5

6

7

34

2 BALANCE SHEET (NON-GMP BASIS) BUDGET FUND 35 3 SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT

(NON-GMP BASIS) BUDGET FUND 37 4 STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES COMPARED TO BUDGET

BY PROGRAM AND FUNDING SOURCE (NON-GMP BASIS) BUDGET FUND 38

5 STATEMENT OF CHANGES TO FUND BALANCE BY PROGRAM AND FUNDING SOURCE

(NON-GMP BASIS) BUDGET FUND 40 6 SCHEDULE OF APPROVED BUDGET 43

SCHEDULES


-TABLE OF CONTENTS-

SECTION I

FINANCIAL


7 SCHEDULE OF ALLOTMENTS TO UNITS OF THE UNIVERSITY SYSTEM OF GEORGIA

8 ANALYSIS OF PRIOR YEAR'S SURPLUS FUNDS COLLECTED FROM INSTITUTIONS

9 ANALYSIS OF EARLY REMITIANCE OF CURRENT YEAR SURPLUS FUNDS COLLECTED FROM INSTITUTIONS

10 RECONCILIATION OF SALARIES AND TRAVEL

SECTION II

AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS

SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS

SECTION Ill

CURRENT YEAR FINDINGS AND QUESTIONED COSTS

SCHEDULE OF FINDINGS AND QUESTIONED COSTS

44

46

47 49

SECTION I

FINANCIAL

DEPARTMENT OF AUDITS AND ACCOUNTS

Russell W. Hinton STATE AUDITOR (404) 656-2174

270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400

December 20, 2011

Honorable Nathan Deal, Governor Members of the General Assembly of Georgia Members of the Board of Regents of the University System of Georgia

and Honorable Henry M. Huckaby, Chancellor

INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION

Ladies and Gentlemen:

We have audited the accompanying financial statements of the business-type activities and the aggregate remaining fund information (Exhibits A through F) of the University System Office (Oversight Unit) of the Board of Regents of the University System of Georgia, an organizational unit of the State of Georgia, as of and for the year ended June 30, 2011. These financial statements are the responsibility of the University System Office's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the University System Office's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

As discussed in Note 1, the financial statements of the University System Office are intended to present the financial position and changes in financial position, and where applicable, cash flows of only that portion of the business-type activities of the State of Georgia that is attributable to the transactions of the University System Office. They do not purport to, and do not, present fairly the financial position and changes in financial position, and where applicable, cash flows of the State of Georgia, in conformity with accounting principles generally accepted in the United States of America.

11ARL-62

In our opm1on, the basic financial statements referred to above present fairly, in all material respects, the financial position of the business-type activities and aggregate remaining fund information of the University System Office as of June 30, 2011, and the respective changes in financial position, and where applicable, cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

Management's Discussion and Analysis and the Schedule of Funding Progress are not a part of the basic financial statements but are required supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of this required supplementary information. However, we did not audit this information and express no opinion on it.

Our audit was conducted for the purpose of forming an opinion on the basic financial statements of the University System Office taken as a whole. The accompanying supplementary information (Schedules 2 through 10) is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

RWH:as 11ARL-62

Respectfully submitted,

~.J.~ ell W. Hinton, CPA, CGFM

e Auditor


Introduction

UNIVERSITY SYSTEM OFFICE Management's Discussion and Analysis

The University System Office of Georgia's Board of Regents was created in 1931 as part of a reorganization of Georgia's state government. With this act, public higher education in Georgia was unified for the first time under a single governing and management authority. The governor appoints members to the Board, who each serve seven years. Today, the Board of Regents is composed of 18 members, five of whom are appointed from the state-at-large, and one from each of the 13 congressional districts. The Board elects a chancellor who serves as its chief executive officer and the chief administrative officer of the University System.

The Board oversees 35 institutions: four research institutions, two regional universities, 13 state universities, eight state colleges, and eight two-year colleges. In addition, one marine research institute is governed by the Board. These institutions enroll more than 311,000 students and employ approximately 13,000 faculty and 31,000 staff to provide teaching and related services to students and the communities in which they are located.

The University System Office also serves as custodian of the Board of Regents Retiree Health Benefit Fund, for University System of Georgia retiree health and life insurance benefits.

Overview of the Financial Statements and Financial Analysis

The University System Office is proud to present its financial statements for fiscal year 2011. The emphasis of discussions about these statements will be on current year data. There are three financial statements presented: the Statement of Net Assets; the Statement of Revenues, Expenses and Changes in Net Assets; and the Statement of Cash Flows. This discussion and analysis of the University System Office's financial statements provides an overview of its financial activities for the year. Comparative data is provided for fiscal year 2011 and fiscal year 2010. As custodian of the Board of Regents Retiree Health Benefit Fund, two additional statements are presented: the Statement of Fiduciary Net Assets and the Statement of Changes in Fiduciary Net Assets.

Statement of Net Assets

The Statement of Net Assets presents the assets, liabilities, and net assets of the University System Office as of the end of the fiscal year. The Statement of Net Assets is a point of time financial statement. The purpose of the Statement of Net Assets is to present to the readers of the financial statements a fiscal snapshot of the University System Office. The Statement of Net Assets presents end-of-year data concerning Assets (current and noncurrent), Liabilities (current and noncurrent), and Net Assets (assets minus liabilities). The difference between current and noncurrent assets will be discussed in the Notes to the Financial Statements.

From the data presented, readers of the Statement of Net Assets are able to determine the assets available to continue the operations of the University System Office. They are also able to determine how much the University System Office owes vendors.

Finally, the Statement of Net Assets provides a picture of the net assets (assets minus liabilities) and their availability for expenditure by the University System Office. Net assets are divided into three major categories. The first category, invested in capital assets, net of debt, provides the University System Office's equity in property, plant and equipment owned by the University System Office. The next asset category is restricted net assets, which is divided into two categories, nonexpendable and expendable. The corpus of nonexpendable restricted resources is only available for investment purposes. Expendable restricted net assets are available for expenditure by the University System Office but must be spent for purposes as determined by donors and/or external entities that have placed time or purpose restrictions on the use of the assets. The final category is unrestricted net assets. Unrestricted net assets are available to the University System Office for any lawful purpose of the University System Office.

Statement of Net Assets, Condensed

Assets Current Assets

Capital Assets, Net

Other Assets

Total Assets

Liabilities Current Liabilities

Noncurrent Liabilities

Total Liabilities

Net Assets Invested in Capital Assets, Net of Debt

Restricted- Nonexpendable

Restricted - Expendable

Unrestricted

Total Net Assets

June 30, 2011

$ 394,853,819

42,174,989

10,473,480

$ 447,502,288

$ 336,953,166

15,712,970

$ 352,666,136

$

$

26,300,467

3,612,043

42,081,324

22,842,318

94,836,152

June 30,2010

$ 275,296,772

52,575,989

9,656,825

$ 337,529,586

$ 240,750,926

18,955,004

$ 259,705,930

$

$

30,659,141

3,612,043

30,458,910

13,093,562

77,823,656

The total assets of the University System Office increased by $109,972,702. A review of the Statement of Net Assets will reveal that the increase was primarily due to increases in Cash and Cash Equivalents of $104,057,600 and Short-Term Investments of $17,734,363. These increases are primarily related to the external portion of the Board of Regents investment pool funds. Capital Assets, net decreased by $10,401,000 as depreciation expense and asset retirements outpaced capital additions during fiscal year 2011.

The total liabilities for the year increased by $92,960,206. The combination of the increase in total assets of $109,972,702 and the increase in total liabilities of $92,960,206 yields an increase in total net assets of $17,012,496. The increase in total net assets is primarily in the category of Unrestricted Net Assets, in the amount of $9,7 48,756.

ii

Statement of Revenues, Expenses and Changes in Net Assets

Changes in total net assets as presented on the Statement of Net Assets are based on the activity presented in the Statement of Revenues, Expenses and Changes in Net Assets. The purpose of the statement is to present the revenues received by the University System Office, both operating and nonoperating, and the expenses paid by the University System Office, operating and nonoperating, and any other revenues, expenses, gains and losses received or spent by the University System Office. Generally speaking operating revenues are received for providing goods and services to the various customers and constituencies of the University System Office. Operating expenses are those expenses paid to acquire or produce the goods and services provided in return for the operating revenues, and to carry out the mission of the University System Office. Nonoperating revenues are revenues received for which goods and services are not provided. For example state appropriations are nonoperating because they are provided by the Legislature to the University System Office without the Legislature directly receiving commensurate goods and services for those revenues.

Statement of Revenues, Expenses and Changes in Net Assets, Condensed

Operating Revenues

Operating Expenses

Operating Loss

Nonoperating Revenues and Expenses

Income (Loss) Before Other Revenues,

Expenses, Gains or Losses

Other Revenues, Expenses, Gains or Losses

Increase (Decrease) in Net Assets

Net Assets at Beginning of Year,

as Originally Reported

Prior Year Adjustments

Net Assets at Beginning of Year, Restated

Net Assets at End of Year

June 30, 2011

$ 289,723,663

410,155,840

$ -120,432,177

137,363,195

$ 16,931,018

81,478

$ 17,012,496

$ 77,823,656

$ 77,823,656

$ 94,836,152

June 30, 2010

$ 245,694,038

370,473,530

$ -124,779,492

138,371,177

$ 13,591,685

5,591,885

$ 19,183,570

$ 57,938,876

701,210

$ 58,640,086

$ 77,823,656

The Statement of Revenues, Expenses and Changes in Net Assets reflects a positive year with an increase in the net assets at the end of the year. Some highlights of the information presented on the Statement of Revenues, Expenses and Changes in Net Assets are as follows:

iii

Revenue by Source

For the Years Ended June 30, 2011 and June 30, 2010

June 30, 2011 June 30, 2010

Operating Revenue Grants and Contracts $ 9,242,521 $ 8,382,332

Sales and Services of Educational Departments 33,268,749 30,665,389

Other 247,212,393 206,646,317

Total Operating Revenue $ 289,723,663 $ 245,694,038

Nonoperating Revenue State Appropriations $ 140,436,697 $ 150,891,111

Grants and Contracts 9,595,523 2,251,405

Investment I nco me 1,591,416 1,228,354

Total Nonoperating Revenue $ 151,623,636 $ 154,370,870

Capital Grants and Gifts State $ 81,478 $ 5,591,885

Total Revenues $ 441,428,777 $ 405,656,793

Expenses (By Functional Classification)

For the Years Ended June 30, 2011 and June 30, 2010

June 30, 2011 June 30, 2010

Operating Expenses

Instruction $ 1,161,148 $ 2,106,499 Research 66,797 152,755

Public Service 72,467,222 75,178,554

Academic Support 15,853,787 17,372,086

Student Services 384,621 388,608

Institutional Support 319,917,986 27 4,983,392

Scholarships and Fellowships 304,279 291,636

Total Operating Expenses $ 410,155,840 $ 370,473,530

Nonoperating Expenses Interest Expense (Capital Assets) $ 799,065 $ 965,135

Other 13,461,376 15,034,558

Total Nonoperating Expenses $ 14,260,441 $ 15,999,693

Total Expenses $ 424,416,281 $ 386,4 73,223

iv

Operating revenues increased by $44,029,625 in fiscal year 2011. This was due primarily to an increase in Other Operating Revenues.

Nonoperating revenues decreased by $2,747,234 for the year primarily due to a decrease of $10,454,414 in State Appropriations and an increase of $6,433,041 in Federal Stimulus Revenues.

The compensation and employee benefits category decreased by $1,087,394 and primarily affected the Institutional Support and Public Service categories. The decrease reflects the reduction in workforce during fiscal year 2011.

Supplies and Services increased by $45,093,278 during the past year. The increase was primarily associated with the increased health care claims due to a transition to self-funded programs during fiscal year 2011.

Statement of Cash Flows

The final statement presented by the University System Office is the Statement of Cash Flows. The Statement of Cash Flows presents detailed information about the cash activity of the University System Office during the year. The statement is divided into five parts. The first part deals with operating cash flows and shows the net cash used by the operating activities of the institution. The second section reflects cash flows from noncapital financing activities. This section reflects the cash received and spent for nonoperating, noninvesting, and noncapital financing purposes. The third section deals with cash flows from capital and related financing activities. This section deals with the cash used for the acquisition and construction of capital and related items. The fourth section reflects the cash flows from investing activities and shows the purchases, proceeds, and interest received from investing activities. The fifth section reconciles the net cash used to the operating income or loss reflected on the Statement of Revenues, Expenses and Changes in Net Assets.

Cash Flows for the Years Ended June 30, 2011 and 2010, Condensed

Cash Provided (Used) By: Operating Activities Noncapital Financing Activities Capital and Related Financing Activities Investing Activities

Net Change in Cash Cash, Beginning of Year

Cash, End of Year

$

$

June 30, 2011

-99,807,500 211,209,319

-8,003,656 659,437

104,057,600 162,737,393

$ 266,794,993 ==========

v

$

$

June 30, 2010

-137,912,646 198,671,246 -10,905,554

673,844

50,526,890 112,210,503

$ ==1=6=2=, 7=3=7=,3=9=3

Capital Assets

Since fiscal year 2006, the Georgia Public Telecommunications Commission ("the Commission") transfers property and equipment to the University System Office through an intergovernmental agreement. These assets are located at its tower sites throughout the State. In fiscal 2011, additional equipment was transferred to the University System Office under this arrangement. The value of the equipment transferred in fiscal 2011 was $81,478. The total value of the land, building and equipment transferred to date is $44,490,058, and the accumulated depreciation is $29,519,581, for a net book value of $14,970,477.

The transfer was required for the Commission to obtain the use of five-year, general obligation bonds sold in the University System Office's name on behalf of the Commission. The Commission, an authority created after 1967, cannot have bonds sold on its behalf. An intergovernmental agreement has been executed between the Commission and the University System Office that allows the Commission to utilize these funds for the digital conversion of the towers and antennae. The bonds were sold September 7, 2005, and the agreement with the University System Office expires at the end of the five-year period when the bonds are paid in full. All equipment will be transferred back to the ownership of the Commission at the expiration of the intergovernmental agreement.

For additional information concerning Capital Assets, see Notes 1, 6, 8, and 10 in the Notes to the Financial Statements.

Long-Term Liabilities

The University System Office had Long-Term Liabilities of $18,900,738 which $3,187,768 was reflected as current liability at June 30, 2011.

For additional information concerning Long-Term Liabilities, see Notes 1 and 8 in the Notes to the Financial Statements.

Health and Dental Insurance

The University System Office is the fiscal agent for health and dental insurance for all of the institutions in the University System of Georgia. The financial information for all related health and dental insurance transactions is included on the face of the statement in the Annual Financial Report, including the liability for claims incurred but not reported. The summary information regarding revenues, expenditures and the related liability for fiscal year 2011 is provided below:

vi

Employees; Unpaid Claims and Claim Adjustments (Prior Year IBNR)

Incurred Claims and Claim Adjustments Expenses -Provisions for Insured Events of the Current Year

Payments- Claims and Claim Adjustments Attributable To Insured Events of the Current Year and Prior Years

Unpaid Claims and Claim Adjustments (Current Year IBNR)

Retirees: Unpaid Claims and Claim Adjustments (Prior Year IBNR)

Incurred Claims and Claim Adjustments ExpensesProvisions for Insured Events of the Current Year



Retiree Health Benefit Fund

$

$

$

$

June 30, 2011 June 30, 2010

15,654,000 $ 21,827,567

239,141,227 181,684,842

231,506,052 187,858,409

23,289,175 $ 15,654,000

6,756,000 $ 6,626,917

103,337,394 93,786,415

102,553,611 93,657,332

7,539,783 $ 6,756,000 =====

The University System Office is the custodian for the Board of Regents Retiree Health Benefit Fund. This fund was authorized pursuant to Official Code of Georgia Annotated Section 47-21-21 for the purpose of accumulating funds necessary to meet employer costs of retiree post-employment health insurance benefits. Please see Note 14 for additional information.

Economic Outlook

The University System Office is not aware of any currently known facts, decisions, or conditions that are expected to have a significant effect on the financial position or results of operations during this fiscal year beyond those unknown variations having a global effect on virtually all types of business operations. The University System Office's overall financial position is strong. Even with a relatively flat funded year, the University was able to generate a modest increase in Net Assets. The University anticipates the current fiscal year will be much like last and will maintain a close watch over resources to maintain the University's ability to react to unknown internal and external issues.

John E. Brown, Vice Chancellor for Fiscal Affairs/Treasurer The Board of Regents University System Office

vii

BASIC FINANCIAL STATEMENTS

-1-

ASS.EIS

Current Assets

cash and Cash Equivalents

Short-Term Investments

Accounts Receivable, Net (Note 3)

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA

UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNIT)

STATEMENT OF NET ASSETS

JUNE 30, 2011

Receivables- Federal Financial Assistance

Receivables- Other

Due From Affiliated Organizations

Inventories (Note 4)

Prepaid Items

Total Current Assets

Noncurrent Assets

Investments (Externally Restricted)

Notes Receivable, Net

Capital Assets, Net (Note 6)

Total Noncurrent Assets

Total Assets

LIABILITIES

Current Liabilities

Accounts Payable

Salaries Payable

Benefits Payable Deferred Revenue (Note 7)

Deposits Held for Other Organizations

Lease Purchase Obligations

Compensated Absences

Tota I Current Liabilities

Noncurrent Liabilities

Lease Purchase Obligations


Total Noncurrent Liabilities

Total Liabilities

NET ASSETS

Invested in Capital Assets, Net of Related Debt

Restricted for.

Non expendable

Expendable

Unrestricted

Total Net Assets

The notes to the financial statements are an integral part of this statement.

-2-

EXHIBIT"A"

$ 266,794,993

99,957,909

2,114,872

24,658,119

315,514

238,260

774,152

$ 394,853,819

$ 8,534,953

1,938,527

42,174,989

$ 52,648,469

$ 447,502,288

$ 2,565,884

17,629

23,289,175 163,967

307,728,743

1,234,184

1,953,584

$ 336,953,166

$ 14,640,338

1,072,632

$ 15,712,970

$ 352,666,136

$ 26,300,467

3,612,043

42,081,324

22,842,318

$ =....;;.94,;,;,,8;;,;3;.;;6,;,;;;,1;,;.5~2

OPERATING REVENUES

Grants and Contracts

Federal

Sales and Services

Other Operating Revenues



STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS

YEAR ENDED JUNE 30, 2011

Total Operating Revenues

OPERATING EXPENSES

Salaries

Staff

Employee Benefits

Travel

Scholarships and Fellowships

Utilities

Supplies and Other Services

Depreciation

Total Operating Expenses

Operating Income (Loss)

NONOPERATING REVENUES CEXPENSESl

State Appropriations


Federal

Federal Stimulus

State

Other

Investment Income

Interest Expense

Other Nonoperating Expenses

Net Nonoperating Revenues

Income (Loss) Before Other Revenues, Expenses, Gains, or Losses

Capital Grants and Gifts

State

Increase in Net Assets

Net Assets- Beginning of Year

Net Assets - End of Year

The notes to the financial statements are an integral part of this statement

-3-

$

EXHIBIT"B"

9,242,521

33,268,749

247,212,393

$ _ _.:2=.:8:..:9..:..:, 7..::2.::;3,~6=63=-

$ 27,158,180

7,378,684

387,054

304,279

5,109,432

358,173,468

11,644,743

$ 410,155,840

$ -120,432,177

$ 140,436,697

730,663

6,855,631

12,032

1,997,197

1,591,416

-799,065

-13,461,376

$ 137,363,195

$ 16,931,018

81,478

$ 17,012,496

77,823,656

$ =~9~4~,8~3;,;;,6·;;;;1;;;;52;;.



STATEMENT OF CASH FLOWS


CASH FLOWS FROM OPERATING ACTIVITIES


Sales and Services

Payments to Suppliers

Payments to Employees

Payments for Scholarships and Fellowships

Other Receipts (Payments)

Net Cash Provided (Used) by Operating Activities

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES

State Appropriations

Agency Funds Transactions

Gifts and Grants Received for Other than Capital Purposes

Other Nonoperating Receipts

Net Cash Flows Provided (Used) by Noncapital Financing Activities

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES

Purchases of Capital Assets

Principal Paid on Capital Debt and Leases

Interest Paid on Capital Debt and Leases

Net Cash Provided (Used) by Capital and Related Financing Activities

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from Sales and Maturities of Investments

Interest on Investments

Net Cash Provided (Used) by Investing Activities

Net Increase (Decrease) in Cash

Cash and Cash Equivalents- Beginning of Year

Cash and Cash Equivalents- End of Year

RECONCILIATION OF OPERATING LOSS TO NET CASH

PROVIDED (USED) BY OPERATING ACTIVITIES:

Operating Income (Loss)

Adjustments to Reconcile Operating Income (Loss) to Net Cash

Provided (Used) by Operating Activities

Depreciation

Change in Assets and Liabilities:

Accounts Receivable, Net

Inventories

Prepaid Items

Notes Receivable, Net

Accounts Payable

Deferred Revenue


Net Cash Provided (Used) by Operating Activities

NONCASH ACTIVITY Change in Fair Value of Investments Recognized as a Component of Interest Income

Change in Accrued Interest Payable Affecting Interest Paid

Gift of Capital Assets Reducing Proceeds of Capital Grants and Gifts


-4-

EXHIBIT"C"

$ 7,885,502

33,268,748

-362,176,531

-27,690,195

-304,279

249,209,255

$ -99,807,500

$ 140.436,697

74,638.475

9,596,777

-13.462,630

$ 211,209.319

$ -1,162,265

-6,189,074

-652.317

$ -8,003,656

$ -194,805

854,242

$ 659.437

$ 104,057,600

162,737,393

$ 266,794,993

$ -120.432,177

11,644,743

823,607

-40,807

1,378,173

94,774

7,183,611

-278,540

-180,884

$ -99,807,500

$ ====;7i=l3F;i;7~,1 ... 7 4;;= $ 146,748 $ ====;;8~1'7.4~78i'F

~

Cash and Cash Equivalents

Receivables

Employer

Total Assets

LIABILITIES

Accounts Payable

Benefits Payable

Total Liabilities

NET ASSETS


UNIVERSITY SYSTEM OFFICE (OVERSIGHT UN In

BOARD OF REGENTS RETIREE HEALTH BENEFIT FUND

STATEMENT OF FIDUCIARY NET ASSETS

JUNE 30, 2011

Net Assets Held in Trust for Other Post-Employment Benefits


-5-

EXHIBIT"D"

$ 3,534,978

4,233,927

$ 7,768,905

$ 105,892

7,539,783

$ 7,645,675

$ 123,230

ADDITIONS

Contributions

Employer

Plan Member

Other

Total Contributions

Investment Income

lnteresVDividends

Total Additions

DEDUCTIONS

Benefits

Life Insurance Premium Expense

Administrative Expense

Total Deductions


UNIVERSITY SYSTEM OFFICE (OVERSIGHT UN In

BOARD OF REGENTS RETIREE HEALTH BENEFIT FUND

STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS


Net Increase/Decrease

Beginning Net Assets

Net Assets Held in Trust for Other Post-Employment Benefits


-6-

EXHIBIT "E"

$ 80,261,907

25,770,842

13,592,614

$ 119,625,363

386,488

$ 120,011,851

$ 108,809,029

6,611,811

4,590,319

$ 120,011,159

$ 692

122,538

$ 123,230 =====


NOTES TO THE FINANOAL STATEMENTS JUNE 30, 2011

Note 1.. Summary of Significant Accounting Polides

Nature of Operations

EXHIBIT "F"

The University System Office of Georgia's Board of Regents was created in 1931 as part of a reorganization of Georgia's state government. With this act, public higher education in Georgia was unified for the first time under a single governing and management authority. The governor appoints members to the Board, who each serve seven years. Today, the Board of Regents is composed of 18 members, five of whom are appointed from the state-at-large, and one from each of the 13 congressional districts. The Board elects a Chancellor who serves as its chief executive officer and the chief administrative officer of the University System.

The Board oversees 35 institutions: four research institutions, two regional universities, 13 state universities, eight state colleges, and eight two-year colleges. In addition, one marine research institute is governed by the Board. These institutions enroll more than 311,000 students and employ approximately 13,000 faculty and 31,000 staff to provide teaching and related services to students and the communities in which they are located.

The University System Office also serves as custodian of the Board of Regents Retiree Health Benefit Fund, for University System of Georgia retiree health and life insurance benefits.

Reporting Entity The University System Office is the administrative central office for the thirty-five (35) State supported member institutions of higher education in Georgia and one marine research institute, which comprise the University System of Georgia, an organizational unit of the State of Georgia. The University System Office also is the custodian of a Fiduciary Fund for retiree health and life insurance benefits. The accompanying financial statements reflect the operations of University System Office as a separate reporting entity and as custodian of the Board of Regents Retiree Health Benefit Fund.

The Board of Regents has constitutional authority to govern, control and manage the University System of Georgia. This authority includes but is not limited to the power to designate management, the ability to significantly influence operations, the authority to control institutions' budgets, the power to determine allotments of State funds to member institutions and the authority to prescribe accounting systems and administrative policies for member institutions. The University System Office does not have authority to retain unexpended State appropriations (surplus) for any given fiscal year. Accordingly, the University System Office is considered an organizational unit of the Board of Regents of the University System of Georgia reporting entity for financial reporting purposes because of the significance of its legal, operational, and financial relationships with the Board of Regents as defined in Section 2100 of the Governmental Accounting Standards Board (GASB) Codification of Governmental Accounting and Financial Reporting Standards.

Legally separate, tax exempt organizations whose activities primarily support the University System of Georgia, which are organizational units of the State of Georgia, are considered potential component units of the State. See Note 16, Affiliated Organizations, for additional information.

Financial Statement Presentation The financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) as prescribed by the GASB and are presented as required by these standards to provide a comprehensive, entity-wide perspective of the University System Office's assets, liabilities, net assets, revenues, expenses, changes in net assets and cash flows.

- 7 -

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSfEM OFFICE (OVERSIGHT UNIT)

NOTES TO THE FINANOAL SfATEMENTS JUNE 30, 2011

Basis of Accounting

EXHIBIT "F"

For financial reporting purposes, the University System Office is considered a special-purpose government engaged in business-type and fiduciary activities. Accordingly, the University System Office's financial statements have been presented using the economic resources measurement focus and the accrual basis of accounting. Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred. All significant intrasystem transactions have been eliminated.

The University System Office has the option to apply all Financial Accounting Standards Board (FASB) pronouncements issued after November 30, 1989, unless FASB conflicts with GASB. The University System Office has elected to not apply FASB pronouncements issued after the applicable date.

Cash and cash Equivalents Cash and Cash Equivalents consist of petty cash, demand deposits and time deposits in authorized financial institutions, and cash management pools that have the general characteristics of demand deposit accounts. This includes the Board of Regents Short-Term Investment Pool.

Short-Term Investments Short-Term Investments consist of investments of 90 days - 13 months. This would include certificates of deposits or other time restricted investments with original maturities of six months or more when purchased. Funds are not readily available and there is a penalty for early withdrawal. The Board of Regents Balanced Income Fund, the Board of Regents Total Return Fund, the Georgia Extended Asset Pool, and portions of the Board of Regents Legal Fund and the Board of Regents Diversified Fund, are included under Short-Term Investments.

Investments Investments include financial instruments with terms in excess of 13 months, certain other securities for the production of revenue, land, and other real estate held as investments by endowments. The University System Office accounts for its investments at fair value. Changes in unrealized gain (loss) on the carrying value of investments are reported as a component of investment income in the Statement of Revenues, Expenses and Changes in Net Assets. Portions of the Board of Regents Legal Fund and the Board of Regents Diversified Fund are included under Investments.

Accounts Receivable Accounts receivable consists of amounts due from other institutions within the University System of Georgia, primarily for health insurance premiums. Accounts receivable also includes amounts due from the Federal government, state and local governments, or private sources, in connection with reimbursement of allowable expenditures made pursuant to the University System Office's grants and contracts. Accounts receivable are recorded net of estimated uncollectible amounts.

Inventories Resale Inventories are valued at cost using the "first in, first out" (FIFO) basis.

Noncurrent Investments Investments that are externally restricted and cannot be used to pay current liabilities are classified as noncurrent assets in the Statement of Net Assets.

-8-

Capital Assets



EXHIBIT "F"

Capital assets are recorded at cost at the date of acquisition, or fair market value at the date of donation in the case of gifts. For equipment, the University System Office's capitalization policy includes all items with a unit cost of $5,000 or more, and an estimated useful life of greater than one year. Renovations to buildings, infrastructure, and land improvements that exceed $100,000 and/or significantly increase the value or extend the useful life of the structure are capitalized. Routine repairs and maintenance are charged to operating expense in the year in which the expense was incurred. Depreciation, which also includes amortization of intangible assets such as water, timber, and mineral rights, easements, patents, trademarks, and copyrights, as well as software is computed using the straight-line method over the estimated useful lives of the assets, generally 40 to 60 years for buildings, 20 to 25 years for infrastructure and land improvements, 10 years for library books, and 3 to 20 years for equipment. Residual values will generally be 10% of historical costs for infrastructure, buildings and building improvements, and facilities and other improvements.

To obtain the total picture of plant additions in the University System, it is necessary to look at the activities of the Georgia State Financing and Investment Commission (GSFIC) - an organization that is external to the System. GSFIC issues bonds for and on behalf of the State of Georgia, pursuant to powers granted to it in the Constitution of the State of Georgia and the Act creating the GSFIC. The bonds so issued constitute direct and general obligations of the State of Georgia, to the payment of which the full faith, credit and taxing power of the State are pledged.

For projects managed by GSFIC, the GSFIC retains construction in progress on its books throughout the construction period and transfers the entire project to the University System Office when complete. For the year ended June 30, 2011, GSFIC transferred equipment for the Georgia Public Telecommunications Commission to the University System Office valued at $81,4 78.

Deposits The University System Office had $307,728,7 43 in Deposits Held for Other Organizations as of June 30, 2011. Deposits held for others consist of the external portion of the University System of Georgia's Pooled Investment Fund program and other funds held by the University System Office as an agent for various governments or individuals.

Deferred Revenues Deferred revenues also include amounts received from grant and contract sponsors that have not yet been earned.

Compensated Absences Employee vacation pay is accrued at year-end for financial statement purposes. The liability and expense incurred are recorded at year-end as compensated absences in the Statement of Net Assets, and as a component of compensation and benefit expense in the Statement of Revenues, Expenses and Changes in Net Assets. University System Office had accrued liability for compensated absences in the amount of $3,207,100 as of July 1, 2010. For fiscal year 2011, $1,828,561 was earned in compensated absences and employees were paid $2,009,445, for a net decrease of $180,884. The ending balance as of June 30, 2011 in accrued liability for compensated absences was $3,026,216.

Noncurrent Liabilities Noncurrent liabilities include (1) liabilities that will not be paid within the next fiscal year; (2) capital lease obligations with contractual maturities greater than one year; and (3) other liabilities that, although payable within one year, are to be paid from funds that are classified as noncurrent assets.

-9-

Net Assets



The University System Office's net assets are classified as follows:

EXHIBIT "F"

Invested in capital assets, net of related debt: This represents the University System Office's total investment in capital assets, net of outstanding debt obligations related to those capital assets. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a component of invested in capital assets, net of related debt. The term "debt obligations" as used in this definition does not include debt of the GSFIC as discussed previously in Note 1 - Capital Assets section.

Restricted net assets - nonexpendable: Nonexpendable restricted net assets consist of endowment and similar type funds in which donors or other outside sources have stipulated, as a condition of the gift instrument, that the principal is to be maintained inviolate and in perpetuity, and invested for the purpose of producing present and future income, which may either be expended or added to principal. The University System Office may accumulate as much of the annual net income of an institutional fund as is prudent under the standard established by Code Section 44-15-7 of Annotated Code of Georgia.

Restricted net assets- expendable: Restricted expendable net assets include resources in which the University System Office is legally or contractually obligated to spend resources in accordance with restrictions imposed by external third parties.

Expendable Restricted Net Assets include the following:

Restricted - E&G and Other Organized Activities

Health Insurance Reserve (USO only)

Total Restricted Expendable

$

$

14,190,983 27,890,341

42,081,324 ======

Unrestricted net assets: Unrestricted net assets represent resources derived from state appropriations, and sales and services of educational departments. These resources are used for transactions relating to the educational and general operations of the University System Office, and may be used at the discretion of the governing board to meet current expenses for those purposes, except for unexpended state appropriations (surplus). Unexpended state appropriations must be remitted to the Office of the State Treasurer. At June 30, 2011, there was a surplus balance of $24,596.58 to be refunded.

Unrestricted Net Assets includes the following items which are quasi-restricted by management.

Reserve for Encumbrances

Other Unrestricted

Total Unrestricted Net Assets

$ 10,006,087 12,836,231

$ ===2=2==,8=4=2=,3=1=8

When an expense is incurred that can be paid using either restricted or unrestricted resources, the University System Office's policy is to first apply the expense towards unrestricted resources, and then towards restricted resources.

Income Taxes The University System Office, as a political subdivision of the State of Georgia, is excluded from Federal income taxes under Section 115(1) of the Internal Revenue Code, as amended.

-10-



Classification of Revenues and Expenses

EXHIBIT "F"

The Statement of Revenues, Expenses and Changes in Net Assets classify fiscal year activity as operating and nonoperating according to the following criteria:

Operating Revenues. Operating revenue includes activities that have the characteristics of exchange transactions, such as (1) certain Federal, state and local grants and contracts, (2) sales and services, and (3) health insurance premiums received from institutions within the University System of Georgia for self-insured health plans offered.

Nonoperating Revenues. Nonoperating revenue includes activities that have the characteristics of nonexchange transactions, such as gifts and contributions, and other revenue sources that are defined as nonoperating revenue by GASB No. 9, Reporting cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities That Use Proprietary Fund Accounting, and GASB No. 34, such as state appropriations and investment income.

Operating Expenses. Operating expense includes activities that have the characteristics of exchange transactions.

Nonoperating Expenses. Nonoperating expense includes activities that have the characteristics of nonexchange transactions, such as capital financing costs and costs related to investment activity.

Note 2. Deposits and Investments

Deposits The custodial credit risk for deposits is the risk that in the event of a bank failure, the University System Office's deposits may not be recovered. Funds belonging to the State of Georgia (and thus the University System Office) cannot be placed in a depository paying interest longer than ten days without the depository providing a surety bond to the State. In lieu of a surety bond, the depository may pledge as collateral any one or more of the following securities as enumerated in the Official Code of Georgia Annotated Section 50-17-59:

1. Bonds, bills, notes, certificates of indebtedness, or other direct obligations of the United States or of the State of Georgia.

2. Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia.

3. Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose.

4. Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia.

5. Bonds, bills, certificates of indebtedness, notes or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest and debt obligations issued by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association and the Federal National Mortgage Association.

- 11-



EXHIBIT "F"

6. Guarantee or insurance of accounts provided by the Federal Deposit Insurance Corporation.

The Treasurer of the Board of Regents is responsible for all details relative to furnishing the required depository protection for all units of the University System of Georgia.

At June 30, 2011, the carrying value of deposits was $44,390,926 and the bank balance was $46,637,143. Of the University System Office's deposits, $46,582,286 was uninsured. Of these uninsured deposits, $46,582,286 were collateralized with securities held by the financial institution, by its trust department or agency, but not in the University System Office's name.

Investments The University System Office serves as fiscal agent for various units of the University System of Georgia and cooperative organizations. The University System Office pools the monies of these organizations with the University System Office's monies for investment purposes. The University System Office cannot allocate pool investments between the internal (University System) and external (cooperative organizations) investment pool portions. The investment pool is not registered with the SEC as an investment company. The fair value of the investments is determined daily. The pool does not issue shares. Each participant is allocated a pro rata share of each investment at fair value along with a pro rata share of the interest that it earns.

The University System Office maintains investment policy guidelines for each pooled investment fund that is offered to qualified University System participants. These policies are intended to foster sound and prudent responsibility each institution has to the citizens of Georgia and which conforms to the Board of Regents investment policy. All investments must be consistent with donor intent, Board of Regents policy, and applicable Federal and state laws.

Units of the University System of Georgia and their affiliated organizations may participate in the Pooled Investment Fund program. The overall character of the pooled fund portfolio should be one of above average quality, possessing at most an average degree of investment risk.

Short-Term Fund The Short-Term fund provides a current return and stability of principal while affording a means of overnight liquidity for projected cash needs. The investment maturities of the fund will range between daily and two years.

Legal Fund The Legal fund provides an opportunity for greater income and modest principal growth to the extent possible with the securities allowed under Georgia Code 50-17-59 and 50-17-63. The average maturity of this fund will typically range between five and ten years, with a maximum of thirty years for any individual investment. The overall character of the portfolio should be one of treasury and agency quality, possessing virtually no degree of financial risk.

Balanced Income Fund The Balanced Income fund is designed to be a vehicle to invest funds that are not subject to the state regulations concerning investing in equities. This fund is comprised of fixed income, equity and cash equivalent instruments.

The equity allocation range shall be between 30% and 40%, with a target of 35% of the total portfolio. The fixed income (bond) portion of the portfolio shall be between 60% and 70%, with a target of 65% of the total portfolio. Reserves for contingencies and stock and bond purchases are

-12-



EXHIBIT "F"

expected to comprise the balance of the fund. Reserves and excess income should be invested at all times in practical amounts. Reserves can be invested in high quality institutional money market mutual funds or other high quality, short-term instruments.

Total Return Fund The Total Return fund is another pool designed to be a vehicle to invest funds that are not subject to state regulations concerning investing in equities. This pool offers the greatest percentage of overall equity exposure, with well over half of the funds typically invested in equities.

The equity allocation range shall be between 60% and 70%, with a target of 65% of the total portfolio. The fixed income (bond) portion of the portfolio shall be between 30% and 40%, with a target of 35% of the total portfolio. Reserves for contingencies and stock and bond purchases are expected to comprise the balance of the fund. Reserves and excess income should be invested at all times in practical amounts. Reserves can be invested in high quality institutional money market mutual funds or other high quality, short-term instruments.

Diversified Fund The Diversified fund is designed to gain further diversification and increase exposures to assets that have lower correlation to equity and bond markets by utilizing alternative asset classes. In addition, this fund is constructed to build an optimal portfolio where return is increased and risk is reduced.

The equity allocation range shall be between 50% and 75% of the portfolio. The fixed income (bond) portion of the portfolio shall be between 20% and 40%. The portfolio may also consist of Hedge Funds, Real Estate and Venture Capital/Private Equity/Post Venture Capital.

Hedge Funds- The investment approach to this asset class is to use a multi-strategy, multi-manager fund of hedge funds. The Board of Regents believes that a fund of fund strategy will provide the best access to a highly diversified pool of hedge fund strategies and managers.

Real Estate - The Board of Regents' approach to investing in this asset class is to use real estate investment trusts (REITs). REITs are more liquid than owning commercial real estate and diversification can be achieved by purchasing a mutual fund.

Venture Capital/Private Equity/Post Venture Capital - This asset class is the riskiest and most volatile permitted investment opportunity. This asset should be considered as an additional diversification investment strategy due to the low correlation with stock and bonds.

Reserves for contingencies and stock and bond purchases are expected to comprise the balance of the fund. Reserves and excess income should be invested at all times in practical amounts. Reserves can be invested in high quality, institutional money market mutual funds or other high quality, short-term instruments.

-13-

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNm


EXHIBIT "F"

The University System Office's investments as of June 30, 2011 are presented below. All investments are presented by investment type and debt securities are presented by maturity.

Investment Type

Debt Securities

U. S. Treasuries

U. S. Agencies

Explicitly Guaranteed

Implicitly Guaranteed

Mutual Bond Fund

Repurchase Agreements

Other Investments

Bond/Equity Mutual Funds

Equity Mutual Funds

Equity Securities- Domestic

Real Estate Investment Fund

Total Investments

Interest Rate Risk

$

$

$

Fair

Value

1,761,396

22,637,078

186,342,567

14,680,558

33,179,642

258,601,241

16,902,856

3,833,718

52,726,233

2,367,859

334,431,907

$

$

Investment Maturity

Less Than More than

1 Year 1-5 Years 6 -10years 10Years

$ 1,761,396

17,617,012 $ 5,020,066

7,075,202 $ 19,959,431 14,568,314 144,739,620

14,323,778 356,780

33,179,642

40,254,844 $ 19,959,431 $ 48,270,500 $ 150,116,466

Interest rate risk is the risk that changes in interest rates of debt investments will adversely affect the fair value of an investment. The University System Office's policy for managing interest rate risk is contained in the investment policy guidelines for the various pooled funds:

1. In the Short-Term fund, the average maturity of the fixed income portfolio shall not exceed three years.

1. In all the other pooled funds, the average maturity of the fixed income portfolio shall not exceed ten years.

2. Fixed income investments, except in the Diversified Fund, shall be limited to U. S. government agency and corporate debt instruments that meet investment eligibility under Georgia Code 50-17-63.

3. The fixed income target allocation is defined in the investment policy guidelines for each pooled investment fund. These targets may be modified upon recommendation of the fund's investment manager and approval by the Board of Regents.

Credit Quality Risk Credit quality risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The University System Office's policy for managing credit quality risk is contained in the investment policy guidelines for the various pooled investment funds:

-14-



EXHIBIT "F"

1. In all pooled funds except the Diversified Fund, all debt issues must be eligible investments under Georgia Code 50-17-63. Portfolios of debt security funds also must meet the eligible investment criteria under the same code section.

2. The Diversified Fund is permitted to invest in non investment grade debt issues up to a limit of 15% of the entire portfolio.

Custodial Credit Risk Custodial credit risk for investments is the risk that, in the event of a failure of the counterparty to a transaction, the college/university will not be able to recover the value of the investment or collateral securities that are in the possession of an outside party. The University System Office's policy for managing custodial credit risk for investments is:

1. The University System Office has appointed a Federally regulated banking institution as custodian. The custodian performs its duties to the standards of a professional custodian and is liable to the University System Office for claims, losses, liabilities and expenses arising from its failure to exercise ordinary care, its willful misconduct, or its failure to otherwise act in accordance with the contract.

2. All securities transactions are to be settled on a delivery vs. payment basis through an approved depository institution such as the Depository Trust Company or the Federal Reserve.

3. Repurchase agreements are to be collateralized by United States Treasury securities at 102% of the market value of the investment at all times.

At June 30, 2011, $316,981,858 of the University System Office's applicable investments were uninsured and held by the investment's counterparty in the University System Office's name.

Credit Quality Risk Credit quality risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The University System Office's policy for managing credit quality risk is contained in the investment policy guidelines for the various pooled investment funds:

1. In all pooled funds except the Diversified Fund, all debt issues must be eligible investments under Georgia Code 50-17-63. Portfolios of debt security funds also must meet the eligible investment criteria under the same code section.

2. The Diversified Fund is permitted to invest in noninvestment grade debt issues up to a limit of 15% of the entire portfolio.

-15-



The investments subject to credit quality risk are reflected below:

Fair Value Unrated

Related Debt Investments U. S. Agencies $ 186,342,567 $ 186,342,567 Mutual Bond Fund 14,680,558 14,680,558 Repurchase Agreements- Underlying

U. S. Agency Securities 33,179,642 33,179,642

$ 234,202,767 $ 234,202,767

Concentration of Credit Risk

EXHIBIT "F"

Concentration of credit risk is the risk of loss attributed to the magnitude of a government's investment in a single issuer. The University System Office's policy for managing concentration of credit risk is to diversify investments to the extent that any single issuer shall be limited to 5% of the market value in a particular investment fund. The following U.S. Agency investments exceeded 5% of the total reported investment amount as of June 30, 2011:

Investment: Amount:

Federal National Mortgage Association $ 127,429,943 Federal Home Loan Mortgage Corporation $ 57,387,491 Repurchase Agreements $ 33,179,642 !Shares Equity Securities $ 26,636,415

Condensed financial information for the investment pool is as follows:

Statement of Net Assets -June 30. 2011

Assets Investments Accrued Interest and Other Receivables

Net Assets Held in Trust for Pool Participants Internal Portion External Portion

-16-

%of Total

38% 17% 10%

8%

$ 331,263,633 709,287

$ 331,972,920

$ 24,542,581 307,430,339

$ 331,972,920


EXHIBIT "F"


Statement of Changes in Net Assets- For the Year Ended June 30. 2011

Revenues Interest Income Net Increase in Fair Value of Investments

Total Revenues

Expenses Operating Expenses

Administrative Expenses

Net Increase in Assets Resulting from Operations

Distribution to Participants Capital Transactions

Total Increase in Assets Resulting from Operations

Net Assets July 1, 2010

Net Assets June 30, 2011

Note 3. Accounts Receivable

Accounts receivable consisted of the following at June 30, 2011:

Federal Financial Assistance Other

Less Allowance for Doubtful Accounts

Net Accounts Receivable

Note 4. Inventories

Inventories consisted of the following at June 30, 2011:

Other

Note 5. Notes/Loans Receivable

$

$

$

$

$

$

$

$

$

8,621,379 10,663,752

19,285,131

-517,600

18,767,531

-37,124,890 101,215,266

82,857,907

249,115,013

331,972,920

2,114,872 25,013,350

27,128,222 39,717

27,088,505

238,260

The Georgia Education Authority (University), (GEA (U)), was authorized to acquire, construct and operate housing accommodations for students of any institution under the control of the Board of Regents of the University System of Georgia. The GEA (U) constructed a dormitory on the campus of Georgia Southern University (GSOU) and financed the construction by obtaining a loan in 1994 from the U.S. Department of Education in the amount of $3,000,000 at an interest rate of 5.5% for a term of thirty years. In July 2007, GEA (U) met and resolved to no longer conduct business as a state

- 17-


NOTES TO THE ANANOAL STATEMENTS JUNE 30, 2011

EXHIBIT "F"

authority and dispose of all its assets and liabilities. As a result of that decision, a Note Receivable that is payable from GSOU was transferred by Resolution from GEA (U) to the University System Office (USO) in fiscal year 2008. GSOU has an obligation to send the USO annual payments of $205,320 through the year 2025. In fiscal year 2011, the University System Office collected $205,320, $110,546 of which represented interest. Total principal collected on the Note Receivable was $94,774. At June 30, 2011, the Notes Receivable balance was $1,938,527. There is no allowance for doubtful collection.

Note 6. Capital Assets

Following are the changes in capital assets for the year ended June 30, 2011:

Beginning Ending

Balance Balance

July 1, 2010 Additions Reductions June 30, 2011

capital Assets, Not Being Depreciated:

Land $ 2,427,424 $ 0 $ 0 $ 2,427,424

capitalized Collections 10,000 10,000

Total capital Assets, Not Being Depreciated $ 2,437,424 $ 0 $ 0 $ 2,437,424

Capital Assets, Being Depreciated:

Building and Building Improvements $ 217,978 $ 217,978

Equipment 61,084,125 $ 1,243,743 $ 741,281 61,586,587

capital Leases 50,940,061 148,452 50,791,609

Software 13,995,316 13,995,316

Total Assets Being Depreciated $ 126,237,480 $ 1,243,743 $ 889,733 $ 126,591,490

Less: Accumulated Depreciation:

Building and Building Improvements $ 4,905 $ 4,905 $ 9,810

Equipment 39,352,521 5,762,158 $ 615,162 44,499,517

Capital Leases 30,298,870 4,859,852 274,571 34,884,151

Software 6,442,619 1,017,828 7,460,447

Total Accumulated Depreciation $ 76,098,915 $ 11,644,743 $ 889,733 $ 86,853,925

Total capital Assets, Being Depreciated, Net $ 50,138,565 $ -10,401,000 $ 0 $ 39,737,565

capital Assets, Net $ 52,575,989 $ -10,401,000 $ 0 $ 42,174,989

Since fiscal year 2006, the Georgia Public Telecommunications Commission ("the Commission") transfers property and equipment to the University System Office through an intergovernmental agreement. These assets are located at its tower sites throughout the State. In fiscal year 2011, additional equipment was transferred to the University System Office under this arrangement. The value of the equipment transferred in fiscal year 2011 was $81,478. The total value of the land, building and equipment transferred to date is $44,490,058, and the accumulated depreciation is $29,519,581, for a net book value of $14,970,477.

-18-


NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2011

Note 7. Deferred Revenue

Deferred revenue consisted of the following at June 30, 2011:

EXHIBIT "F"

Other Deferred Revenue $ 163,967 --===="""'==

Note B. Long-Term Uabilities

Long-Term liability activity for the year ended June 30, 2011 was as follows:

Beginning Ending

Balance Balance Current

July 1, 2010 Additions Reductions June 30, 2011 Portion

Leases

Lease Obligations $ 21,916,848 $ 146,748 $ 6,189,074 $ 15,874,522 $ 1,234,184

Other Uabilities

Compensated Absences 3,207,100 1,828,561 2,009,445 3,026,216 1,953,584

Total Long-Term Obligations $ 25,123,948 $ 1,975,309 $ 8,198,519 $ 18,900,738 $ 3,187,768

Note 9. Significant Commitments

The University System Office had no significant unearned, outstanding, construction or renovation contracts as of June 30, 2011.

Note ~0. Lease Obligations

The University System Office is obligated under various capital leases for the acquisition of real property and equipment

CAPITAL LEASES Capital leases are generally payable in installments ranging from monthly to annually and have terms expiring in various years between 2012 and 2030. Expenditures for fiscal year 2011 were $6,841,391 of which $652,317 represented interest. Total principal paid on capital leases was $6,189,07 4 for the fiscal year ended June 30, 2011. Interest rates range from 2.62 percent to 14.02 percent. The following is a summary of the carrying values of assets held under capital lease at June 30, 2011:

Land

Buildings

Equipment

Total Assets Held Under Capital Lease

$ 50,600 9,827,752 3,343,983

$ 13,222,335 ============

-19-



EXHIBIT "F"

Certain capital leases provide for renewal and/or purchase options. Generally purchase options at bargain prices of one dollar are exercisable at the expiration of the lease terms.

In April 2010, the University System Office entered into a capital lease with a third party for the Shared Services Center in the amount of $3,578,343. The leased assets include land and a building located in Sandersville, Georgia. The lease expires in January, 2030, with an interest rate of 4%. Payments on the lease do not begin until the sixth year of the twenty year lease term. The outstanding principal balance as of June 30, 2011 was $3,760,874 due to the addition of $146,748 in capitalized interest to the principal balance.

The University System Office also has various capital leases for equipment and a capital lease for one building with outstanding balances at June 30, 2011 in the amount of $1,085,919 and $11,027,729, respectively.

OPERATING LEASES

The University System Office has one operating lease for office space used by the Georgia Public Library System. The lease term begins in fiscal year 2011 and is annually renewable through fiscal year 2020.

FUTURE COMMITMENTS

Future commitments for capital leases and for noncancellable operating leases having remaining terms in excess of one year as of June 30, 2011, were as follows:

Year Ending June 30:

2012

2013

2014

2015

2016 2017-2021 2022-2026

2027-2030

$

Total Minimum Lease Payments $

Less: Interest

Principal Outstanding $

Real Property and Equipment

Capital Operating

Leases Leases

1,789,225 $ 183,540

1,385,257 183,540

1,122,054 183,540

1,187,038 189,060

1,494,761 194,800

7,727,750 839,660 5,942,326

1,456,875

22,105,286 $ 1,774,140

6,230,764

15,874,522 ======

The University System Office's fiscal year 2011 expense for rental of real property and equipment under operating leases was $1,452,772.

-20-



Note 11. Retirement Plans

EXHIBIT "F"

The University System Office participates in various retirement plans administered by the State of Georgia under two major retirement systems: Employees' Retirement System of Georgia (ERS System) and Teachers Retirement System of Georgia. These two systems issue separate publicly available financial reports that include the applicable financial statements and required supplementary information. The reports may be obtained from the respective system offices. The significant retirement plans that the University System Office participates in are described below. More detailed information can be found in the plan agreements and related legislation. Each plan, including benefit and contribution provisions, was established and can be amended by State law.

Employees' Retirement System of Georgia

The ERS System is comprised of individual retirement systems and plans covering substantially all employees of the State of Georgia except for teachers and other employees covered by the Teachers Retirement System of Georgia. One of the ERS System plans, the Employees' Retirement System of Georgia (ERS), is a cost-sharing multiple-employer defined benefit pension plan that was established by the Georgia General Assembly during the 1949 Legislative Session for the purpose of providing retirement allowances for employees of the State of Georgia and its political subdivisions. ERS is directed by a Board of Trustees and has the powers and privileges of a corporation. ERS acts pursuant to statutory direction and guidelines, which may be amended prospectively for new hires but for existing members and beneficiaries may be amended in some aspects only subject to potential application of certain constitutional restraints against impairment of contract.

On November 20, 1997, the Board created the Supplemental Retirement Benefit Plan (SRBP-ERS) of ERS. SRBP-ERS was established as a qualified governmental excess benefit plan in accordance with Section 415 of the Internal Revenue Code (IRC) as a portion of ERS. The purpose of the SRBP-ERS is to provide retirement benefits to employees covered by ERS whose benefits are otherwise limited by IRC Section 415. Beginning January 1, 1998, all members and retired former members in ERS are eligible to participate in the SRBP-ERS whenever their benefits under ERS exceed the limitation on benefits imposed by IRC Section 415.

The benefit structure of ERS is established by the Board of Trustees under statutory guidelines. Unless the employee elects otherwise, an employee who currently maintains membership with ERS based upon State employment that started prior to July 1, 1982, is an "old plan" member subject to the plan provisions in effect prior to July 1, 1982. Members hired on or after July 1, 1982 but prior to January 1, 2009 are "new plan" members subject to the modified plan provisions. Effective January 1, 2009, newly hired State employees, as well as rehired State employees who did not maintain eligibility for the "old" or "new" plan, are members of the Georgia State Employees' Pension and Savings Plan (GSEPS). ERS members hired prior to January 1, 2009 also have the option to change their membership to the GSEPS plan.

Under the old plan, new plan, and GSEPS, a member may retire and receive normal retirement benefits after completion of 10 years of creditable service and attainment of age 60 or 30 years of creditable service regardless of age. Additionally, there are some provisions allowing for early retirement after 25 years of creditable service for members under age 60.

-21-



EXHIBIT "F"

Retirement benefits paid to members are based upon a formula adopted by the Board of Trustees for such purpose. The formula considers the monthly average of the member's highest 24 consecutive calendar months of salary, the number of years of creditable service, and the member's age at retirement. Post-retirement cost-of-living adjustments may be made to members' benefits provided the members were hired prior to July 1, 2009. The normal retirement pension is payable monthly for life; however, options are available for distribution of the member's monthly pension, at reduced rates, to a designated beneficiary upon the member's death. Death and disability benefits are also available through ERS.

Member contribution rates are set by law. Member contributions under the old plan are 4% of annual compensation up to $4,200 plus 6% of annual compensation in excess of $4,200. Under the old plan, the University System Office pays member contributions in excess of 1.25% of annual compensation. Under the old plan, these University System Office contributions are included in the members' accounts for refund purposes and are used in the computation of the members' earnable compensation for the purpose of computing retirement benefits. Member contributions under the new plan and GSEPS are 1.25% of annual compensation. The University System Office is required to contribute at a specified percentage of active member payroll established by the Board of Trustees determined annually in accordance with actuarial valuation and minimum funding standards as provided by law. These University System Office contributions are not at any time refundable to the member or his/her beneficiary.

Employer contributions required for fiscal year 2011 were based on the June 30, 2008 actuarial valuation for the old and new plans and were set by the Board of Trustees on September 18, 2008 for GSEPS as follows:

Old Plan* New Plan GSEPS

10.41% 10.41% 6.54%

* 5.66% exclusive of contributions paid by the employer on behalf of old plan members

Members become vested after 10 years of service. Upon termination of employment, member contributions with accumulated interest are refundable upon request by the member. However, if an otherwise vested member terminates and withdraws his/her member contributions; the member forfeits all rights to retirement benefits.

Teachers Retirement System of Georgia

The Teachers Retirement System of Georgia (TRS) is a cost-sharing multiple-employer defined benefit plan created in 1943 by an act of the Georgia General Assembly to provide retirement benefits for qualifying employees in educational service. A Board of Trustees comprised of active and retired members and ex-officio State employees is ultimately responsible for the administration of TRS.

On October 25, 1996, the Board created the Supplemental Retirement Benefit Plan of the Georgia Teachers Retirement System (SRBP-TRS). SRBP-TRS was established as a qualified governmental excess benefit plan in accordance with Section 415 of the Internal Revenue Code (IRC) as a portion of TRS. The purpose of SRBP-TRS is to provide retirement benefits to employees covered by TRS whose benefits are otherwise limited by IRC Section 415. Beginning July 1, 1997, all members and retired former members in TRS are eligible to participate in the SRBP-TRS whenever their benefits under TRS exceed the IRC Section 415 imposed limitation on benefits.

-22-



EXHIBIT "F"

TRS provides service retirement, disability retirement, and survivor's benefits. The benefit structure of TRS is defined and may be amended by State statute. A member is eligible for normal service retirement after 30 years of creditable service, regardless of age, or after 10 years of service and attainment of age 60. A member is eligible for early retirement after 25 years of creditable service.

Normal retirement (pension) benefits paid to members are equal to 2% of the average of the member's two highest paid consecutive years of service, multiplied by the number of years of creditable service up to 40 years. Early retirement benefits are reduced by the lesser of one-twelfth of 7% for each month the member is below age 60 or by 7% for each year or fraction thereof by which the member has less than 30 years of service. It is also assumed that certain cost-of-living adjustments, based on the Consumer Price Index, will be made in future years. Retirement benefits are payable monthly for life. A member may elect to receive a partial lump-sum distribution in addition to a reduced monthly retirement benefit. Death, disability and spousal benefits are also available.

TRS is funded by member and employer contributions as adopted and amended by the Board of Trustees. Members become fully vested after 10 years of service. If a member terminates with less than 10 years of service, no vesting of employer contributions occurs, but the member's contributions may be refunded with interest. Member contributions are limited by State law to not less than 5% or more than 6% of a member's earnable compensation. Member contributions as adopted by the Board of Trustees for the fiscal year ended June 30, 2011 were 5.25% of annual salary. The member contribution rate will increase to 5.53% effective July 1, 2011. Employer contributions required for fiscal year 2011 were 9. 7 4% of annual salary as required by the June 30, 2008 actuarial valuation. The employer contribution rate increased to 10.28% effective July 1, 2011.

The following table summarizes the University System Office contributions by defined benefit plan for the years ending June 30, 2011, June 30, 2010, and June 30, 2009 (dollars in thousands):

ERS TRS

Required Percentage Required Percentage

Fiscal Year Contribution Contributed Contribution Contributed

2011 $ 72,484 100% $ 2,083,786 100% 2010 $ 55,733 100% $ 2,235,964 100% 2009 $ 62,341 100% $ 2,085,313 100%

Regents Retirement Plan

Plan Description The Regents Retirement Plan, a single-employer defined contribution plan, is an optional retirement plan that was created/established by the Georgia General Assembly in O.C.G.A. 47-21-1 et.seq. and administered by the Board of Regents of the University System of Georgia. O.C.G.A. 47-3-68(a) defines who may participate in the Regents Retirement Plan. An "eligible university system employee" is a faculty member or a principal administrator, as designated by the regulations of the Board of Regents. Under the Regents Retirement Plan, a plan participant may purchase annuity contracts from four approved vendors (AIG-VALIC, American Century, Fidelity, and TIAA-CREF) for the purpose of receiving retirement and death benefits. Benefits depend solely on amounts contributed to the plan plus investment earnings. Benefits are payable to participating employees or their beneficiaries in accordance with the terms of the annuity contracts.

-23-

Funding Policy



EXHIBIT "F"

The University System Office makes monthly employer contributions for the Regents Retirement Plan at rates adopted by the Teachers Retirement System of Georgia Board of Trustees in accordance with State statute and as advised by their independent actuary. For fiscal year 2011, the employer contribution was 9.24% for the participating employee's earnable compensation. Employees contribute 5% of their earnable compensation. Amounts attributable to all plan contributions are fully vested and nonforfeitable at all times.

The University System Office and the covered employees made the required contributions of $323,952 (9.24%) and $173,900 (5%), respectively.

AIG-VALIC, American Century, Fidelity, and TIAA-CREF have separately issued financial reports which may be obtained through their respective corporate offices.

Georgia Defined Contribution Plan

Plan Description The University System Office participates in the Georgia Defined Contribution Plan (GDCP) which is a single-employer defined contribution plan established by the General Assembly of Georgia for the purpose of providing retirement coverage for State employees who are temporary, seasonal, and part-time and are not members of a public retirement or pension system. GDCP is administered by the Board of Trustees of the Employees' Retirement System of Georgia.

Benefits A member may retire and elect to receive periodic payments after attainment of age 65. The payment will be based upon mortality tables and interest assumptions to be adopted by the Board of Trustees. If a member has less than $3,500 credited to his/her account, the Board of Trustees has the option of requiring a lump sum distribution to the member in lieu of making periodic payments. Upon the death of a member, a lump sum distribution equaling the amount credited to his/her account will be paid to the member's designated beneficiary. Benefit provisions are established by State statute.

Contributions Member contributions are seven and one-half percent (7.5%) of gross salary. There are no employer contributions. Contribution rates are established by State statute. Earnings are credited to each member's account in a manner established by the Board of Trustees. Upon termination of employment, the amount of the member's account is refundable upon request by the member.

Total contributions made by employees during fiscal year 2011 amounted to $29,890 which represents 7.5% of covered payroll. These contributions met the requirements of the plan.

The Georgia Defined Contribution Plan issues a financial report each fiscal year, which may be obtained from the ERS offices.

Note 12. Risk Management

The University System of Georgia offers its employees and retirees access to three different selfinsured healthcare plan options. A PPO/PPO Consumer healthcare plan was offered for the entire reporting period, and effective 01/01/2011, a HSA/High Deductible PPO and a HMO are also

-24-



EXHIBIT "F"

offered on a self-insured basis. The HSA/High Deductible PPO and HMO were previously insured through Blue Cross Blue Shield of Georgia. The University System Office and participating employees and retirees pay premiums to either of the self-insured healthcare plan options to access benefits coverage. The respective self-insured healthcare plan options are included in the financial statements of the Board of Regents of the University System of Georgia - University System Office. All units of the University System of Georgia share the risk of loss for claims associated with these plans. The reserves for these plans are considered to be a self-sustaining risk fund. The Board of Regents has contracted with Blue Cross Blue Shield of Georgia, a wholly owned subsidiary of WeiiPoint, to serve as the claims administrator for the self-insured healthcare plan products. In addition to the self-insured healthcare plan options offered to the employees of the University System of Georgia, a fully insured HMO healthcare plan option is also offered to System employees through Kaiser.

The prescription drug plan is administered through Medea Health Solutions. Pharmacy drug claims are processed in accordance with guidelines established for the Board of Regents' Prescription Drug Benefit Program. Generally, claims are submitted by participating pharmacies directly to Medea Health Solutions for verification, processing and payment. Medea Health Solutions maintains an eligibility file based on information furnished by Blue Cross - Blue Shield on behalf of the various organizational units of the University System of Georgia.

A reconciliation of total estimated claims liabilities for employees and retirees for the fiscal years ended June 30, 2011 and June 30, 2010 is shown below:

Employees; Unpaid Claims and Claim Adjustments (Prior Year IBNR)




Retirees: Unpaid Claims and Claim Adjustments (Prior Year IBNR)




-25-

$

$

$

$

June 30, 2011 June 30, 2010

15,654,000 $ 21,827,567

239,141,227 181,684,842

231,506,052 187,858,409

23,289,175 $ 15,654,000

6,756,000 $ 6,626,917

103,337,394 93,786,415

102,553,611 93,657,332

7,539,783 $ 6,756,000 =====



EXHIBIT "F"

The Department of Administrative Services (DOAS) has the responsibility for the State of Georgia of making and carrying out decisions that will minimize the adverse effects of accidental losses that involve State government assets. The State believes it is more economical to manage its risks internally and set aside assets for claim settlement. Accordingly, DOAS processes claims for risk of loss to which the State is exposed, including general liability, property and casualty, workers' compensation, unemployment compensation, and law enforcement officers' indemnification. Limited amounts of commercial insurance are purchased applicable to property, employee and automobile liability, fidelity and certain other risks. The University System Office, as an organizational unit of the Board of Regents of the University System of Georgia, is part of the State of Georgia reporting entity, and as such, is covered by the State of Georgia risk management program administered by DOAS. Premiums for the risk management program are charged to the various state organizations by DOAS to provide claims servicing and claims payment.

A self-insured program of professional liability for its employees was established by the Board of Regents of the University System of Georgia under powers authorized by the Official Code of Georgia Annotated Section 45-9-1. The program insures the employees to the extent that they are not immune from liability against personal liability for damages arising out of the performance of their duties or in any way connected therewith. The program is administered by DOAS as a Self-Insurance Fund.

Note 13. Contingendes

Amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies. This could result in refunds to the grantor agency for any expenditures disallowed under grant terms. The amount of expenditures which may be disallowed by the grantor cannot be determined at this time although the University System Office expects such amounts, if any, to be immaterial to its overall financial position.

Litigation, claims and assessments filed against the University System Office (an organizational unit of the Board of Regents of the University System of Georgia), if any, are generally considered to be actions against the State of Georgia. Accordingly, significant litigation, claims and assessments pending against the State of Georgia are disclosed in the State of Georgia Comprehensive Annual Financial Report for the fiscal year ended June 30, 2011.

Note 14. Post-Employment Benefits Other Than Pension Benefits

The Board of Regents Retiree Health Benefit Fund (the "Plan") is a single-employer, defined benefit, healthcare plan administered by the University System Office. The plan was authorized pursuant to Official Code of Georgia Annotated Section 47-21-21 for the purpose of accumulating funds necessary to meet employer costs of retiree post-employment health insurance benefits.

Pursuant to the general powers conferred by the Official Code of Georgia Annotated Section 20-3-31, the Board of Regents of the University System of Georgia has established group health and life insurance programs for regular employees of the University System of Georgia. It is the policy of the Board of Regents to permit employees of the University System of Georgia eligible for retirement or that become permanently and totally disabled to continue as members of the group health and life insurance programs. The policies of the Board of Regents of the University System of Georgia define and delineate who is eligible for these post-employment health and life insurance benefits.

-26-


EXHIBIT "F"


The Board of Regents of the University System of Georgia issues a publicly available financial report that includes financial statements and required supplementary information for the Plan within its Consolidated Annual Financial Report. This report may be obtained at the following website address: http://www.usg.edu/fiscal affairs/reporting/annual fin rep/.

Membership of the plan consisted of the following at June 30, 2011:

Retirees and Beneficiaries Receiving Benefits Terminated Plan Members Entitled To But Not Yet Receiving Benefits

Active Plan Members

Total

Summary of Significant Accounting Policies

$ 18,840 0

41,779

$ 60,619 =====

The financial statements of the Plan are prepared using the accrual basis of accounting. Employer contributions are recognized in the period in which they are due. Benefits and refunds are recognized when due and payable in accordance with the terms of the plan.

Funding Policy The contribution requirements of plan members and the University System of Georgia, as employer, are established and may be amended by the Board of Regents. The Plan is substantially funded on a "pay-as-you-go" basis; however, amounts above the pay-as-you-go basis may be contributed annually, either by specific appropriation or by Board designation.

Organizational units of the Board of Regents of the University System of Georgia pay the employer portion for group insurance for eligible retirees. The employer portion of health insurance for its eligible retirees is based on rates that are established annually by the Board of Regents for the upcoming plan year. For the 2011 plan year, the employer rate was between 70-75% of the total health insurance cost for eligible retirees and the retiree rate was between 25-30%. With regard to life insurance, the employer covers the total cost for $25,000 of basic life insurance. If an individual elects to have supplemental, and/or, dependent life insurance coverage, such costs are borne entirely by the retiree.

For fiscal year 2011, the University System of Georgia contributed $80,261,907 to the plan, for current premiums or claims. Plan members receiving benefits contributed $25,770,842 for current premiums or claims.

As of June 30, 2011, there were 90 employees who had retired or were disabled that were receiving these post-employment health and life insurance benefits. For the year ended June 30, 2011, the University System Office recognized as incurred $437,835 of expenditures, which was net of $157,621 of participant contributions.

Annual OPEB Cost and Net OPEB Obligation The University System of Georgia's annual other post-employment benefit (OPEB) cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities over a period not to exceed thirty years.

-27-



EXHIBIT "F"

The following table shows the components of the University System's annual OPEB cost for fiscal year 2011, the amount actually contributed to the plan, and changes in the University System's net OPEB obligation to the Retiree Health Benefit Fund (dollar amounts in millions):

Annual Required Contribution Interest on Net OPEB Obligation Adjustment to Annual Required Contribution

Annual OPEB Cost (Expense) Less: Contributions Made

Increase in Net OPEB Obligation

Net OPEB Obligation - Beginning of Year

Net OPEB Obligation - End of Year

$

$

$

411.5 31.5

-45.3 397.7 -80.2

317.5 699.9

$ 1,017.4 =====

Since the net OPEB obligation to the Retiree Health Benefit Fund is a liability of the entire University System and not only the University System Office, the annual OPEB cost and net OPEB obligation are reported in the Consolidated Annual Financial Report of the University System of Georgia.

The University System's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for the Retiree Health Benefit Plan for the current and past two fiscal years were as follows (dollar amounts in millions):

Annual OPEB Cost and Net OPEB Obligation

Percentage

Fiscal Annual of Annual Net Year OPEB OPEB Cost OPEB

Ended Cost* Contributed Obligation

2009 $ 346.9 25.7% $ 395.5 2010 $ 374.3 18.7% $ 699.9 2011 $ 397.7 20.2% $ 1,017.4

Funded Status and Funding Progress

Actuarial Actuarial Percentage

Actuarial Value of Accrued Unfunded AAL Funded Annual of Covered

Valuation Assets Liability (UAAL) Ratio Covered Payroll Payroll

Date (a) (b) (b-a) (a/b) (c) ((b-a)/c)

7/1/2008 $ 290,000 $ 3,258,200,000 $ 3,257,910,000 0.0% $ 2,372,385,000 137.3%

7/1/2009 $ 10,566,000 $ 3,129,508,000 $ 3,118,942,000 0.3% $ 2,399,532,000 130.0%

7/1/2010 $ 122,538 $ 3,384,099,942 $ 3,383,977,404 0.0% $ 2,432,366, 796 139.1%

-28-



EXHIBIT "F"

Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.

Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. Additional information as of the latest actuarial valuation follows:

Valuation date Actuarial cost method Amortization method Asset Valuation method Remaining amortization period Actuarial assumptions:

Investment rate of return* Healthcare cost trend rate* Ultimate trend rate Year of Ultimate trend rate

July 1, 2010 Projected Unit Credit Level Dollar, Closed, 30 year Market Value of Assets 27 years

4.50% 8.25% 4.50% 2027

* Includes an inflation assumption of 2.5% Please note that the Investment Rate of Return percentage can change.

-29-



Note 15. Natural Classifications with Functional Classifications

EXHIBIT "F"

The University System Office's operating expenses by functional classification for fiscal year 2011 are shown below:

Natural Classification

Salaries

Staff

Employee Benefits

Travel


Utilities


Depreciation


Natural Classification

Salaries

Staff

Employee Benefits

Travel


Utilities


Depreciation


Note 16. Affiliated Organizations

$

$

$

$

Instruction

46,176

13,619

1,100,296 $

1,057

1,161,148 $

Student

Services

316,598 $

68,023

384,621 $ ====

Functional Classification

Public Academic

Research Service Support

$ 2,150,399 $ 1,032,626

564,890 287,148

49,811 17,874

1,103,495 7,228

66,797 68,486,584 13,929,040

112,043 579,871

66,797 $ 72,467,222 $ 15,853,787 ====

Functional Classification

Scholarships Total

Institutional and Operating

Support Fellowships Expenses

23,612,381 $ 27,158,180

6,445,004 7,378,684

319,369 387,054

$ 304,279 304,279

3,998,709 5,109.432

274,590,751 358,173.468

10,951,772 11,644,743

319,917,986 $ 304,279 $ 410,155,840

In accordance with GASB Statement No. 39, Determining Whether Certain Organizations are Component Units, the University System of Georgia Foundation, Inc. has been determined to be a legally separate, tax exempt organization whose activities primarily support the University System Office of the Board of Regents of the University System of Georgia (an organizational unit of the State of Georgia). The State Accounting Office has determined Component Units of the State of Georgia, as required by GASB Statement No. 39, should be assessed in relation to their significance to the State of Georgia. Accordingly, the University System Office has not included financial activity for the University System of Georgia Foundation, Inc., in these financial statements.

-30-



EXHIBIT "F"

The University System of Georgia Foundation, Inc. has been determined significant to the State of Georgia for the year ended June 30, 2011, and as such, is reported as a discretely presented component unit in the Comprehensive Annual Financial Report of the State of Georgia (CAFR). The significant discretely presented component units issue separate audited financial statements that can be obtained from the Board of Regents of the University System of Georgia.

-31-

(This page left intentionally blank)


-33-

Actuarial Actuarial Value of Valuation Assets

Date (a)

July 1, 2008 $ 290,000 $ July 1, 2009 $ 10,566,000 $ July 1, 2010 $ 122,538 $


SCHEDULE OF FUNDING PROGRESS YEAR ENDED JUNE 30, 2011

BOARD OF REGENTS RETIREE HEALTH BENEFIT FUND SCHEDULE OF FUNDING PROGRESS

Actuarial Accrued

Liability (AAL) Projected Unit Unfunded AAL Funded

Credit (UAAL) Ratio (b) (b-a) (a/b)

3,258,200,000 $ 3,257,910,000 0.0% 3,129,508,000 $ 3,118,942,000 0.3% 3,384,099,942 $ 3,383,977,404 0.0%

BOARD OF REGENTS RETIREE HEALTH BENEFIT FUND SCHEDULE OF EMPLOYER CONTRIBUTIONS

Required Percentage Fiscal Year Contribution Contributed

2009 $ 349,500,000 25.5% 2010 $ 381,678,000 18.3% 2011 $ 411,575,899 19.5%

-34-

SCHEDULE '1'

UAALas a Percentage of Covered

Covered Payroll Payroll (C) ((b-8)/C)

$ 2,372,385,000 137.3%

$ 2,399,532,000 130.0% $ 2,432,366, 796 139.1%



BALANCE SHEET (NON-GAAP BASIS)

Cash and Cash Equivalents

Investments

Accounts Receivable

Federal Financial Assistance

Other

Prepaid Expenditures

Inventories

Total Assets

LIABILITIES AND FUND EQUITY

Liabilities

Encumbrances Payable

Accounts Payable

Accrued Payroll

Deferred Revenue

Total Liabilities

Fund Balances

Reserved

Departmental Sales and Services

Indirect Cost Recoveries

Restricted/Sponsored Funds

Uncollectible Accounts Receivable

Inventories

Property Sale

Unreserved

Surplus

Total Fund Balances

Total Liabilities and Fund Balances

BUDGET FUND

JUNE 30, 2011

Actual amounts were prepared on a prescribed basis of accounting that demonstrates

compliance with budgetary statutes and regulations of the State of Georgia, which is a

comprehensive basis of accounting other than generally accepted accounting principles.

-35-

$

SCHEDULE "2"

25,698,738.10

3,597,992.86

2,114,872.43

1,629,134.87

158,449.33

238,260.16

$ =~3;.;3;,;.,4;.;3.;,7;.;,4,;,4,;.;7 ·.;,7 5;;,.

$ 9,892, 767.92

444,820.08

17,629.37

163,966.63

$ 10,519,184.00

$ 6,691,739.30

639,729.60

8,490,587.97

39,716.59

238,260.16

6, 793,633.55

24,596.58

$ 22,918,263.75

$ =~3;:;;;3;:.,4;,;;3;,;,7,;.;,4;.;4,;,7 ·;,;,7;,5



UNIVERSITY SYSTEM OFFICE (OVERSIGHT UNID

SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (NON-GAAP BASIS)

BUDGET FUND


State Appropriation

State General Funds

Tobacco Funds

Federal Funds

Other Funds

Total Revenues

AQJUSTMENTS ANP PROGRAM TRANSFERS

CARRY-OVER FRoM PRIOR YEARS

Transfers from Reserved Fund Balance

Total Funds Available

EXPENDITURES

Georgia Health Sciences University Hospital and Clinics

Georgia Military College

Georgia Public Telecommunications

Public Libraries

Regents Central Office

Research Consortium

Special Funding Initiative

Teaching

Total Expend~ures

Excess of Funds Available over Expenditures

FUND BALANCE JULY 1

Reserved

Unreserved

ADJUSTMENTS

Prior Year Payables/Expend~ures

Prior Year Receivables/Revenues

Unreserved Fund Balance (Surplus) Returned

to Office of the State Treasurer

Year Ended June 30. 2010

Unreserved Fund Balance (Surplus) Returned

to Board of Regents- University System Office

Year Ended June 30, 2010

Early Remittance of Surplus Returned to

Office of the State Treasurer

Early Rem~nce of SUrplus Returned to

Board of Regents - University System Office

Prior Year Reserved Fund Balance Included in Funds Available

FUNP 8ALANCE JUNE 30

SUMMARY OF FUND BALANCE

Reserved Departmental Sales and Services

Indirect Cost Recoveries

Restricted/Sponsored Funds

Uncollectible Accounts Receivable

Inventories Property Sale

Total Reserved

Unreserved Surplus

Total Fund Balance

Actual amounts were prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a


$

-37-

ORIGINAL

BUDGET

14B,173,520.00

750,000.00

169,566.00

35,751,599.00

184,844,685.00

0.00

0.00

184,844,685.00

31,709,393.00

2.424,555.00

14,130,921.00

39,573,819.00

5,998, 764.00

1.500,000.00 3,490,270.00

86.016,963.00

184,844,685.00

0.00

$

$

FINAL

BUDGET

140,793,499.00

0.00

7,479,155.00

55,344,016.00

203,616,670.00

0.00

1,500,000.00

205,116,670.00

30,441,017.00

2,393,133.00

13,467.718.00

40,149,362.00

5,783,997.00

750,000.00

4, 736,915.00

107,394,528.00

205,116,670.00

0.00

$

$

$

$

$

ACTUAL

140,793,499.00

0.00

7,477,292.13

46,237,675.49

194,508,466.62

0.00

22,625,160.17

217,133,626.79

30.441,017.00

2,393,133.00

13,462,630.00

39,559,037.11

5, 775,270.98

750,000.00

4,576,141.93

97,445,230.65

194,402,460.67

22,731.166.12

22,862,329.91

187,870.38

84,139.58

34,719.58

-3,041,609.43

2,853, 739.05

-1,094,608.16

925,676.89

-22,625,160.17

22,916,263.75

6,691, 739.30

639,729.60

8,490,587.97

39,716.59

238,260.16

6, 793,633.55

22,893,667.17

24,596.58

22,918,263.75

$

$

$

$

SCHEDULE "3"

VARIANCE

FAVORABLE

(UNFAVORABLE)

0.00

0.00

-1,862.87

-9,106,340.51

-9,108,203.38

0.00

21,125,160.17

12,016,956.79

0.00

0.00

5,088.00

590,324.89

8,726.02

0.00

160,773.07

9,949,297.35

10,714,209.33

22,731,166.12



STATEMENT OF FUNDS AVAILABLE AND EXPENDITURES COMPARED TO BUDGET BY PROGRAM AND FUNDING SOURCE

(NON-GAAP BASIS) BUDGET FUND


Original Appropriation

Georgia Health Sciences University Hospital and Clinics

State Appropriation

State General Funds $ 31,709,393.00 $

Georgia Military College State Appropriation


Georgia Public Telecommunications State Appropriation

State General Funds $ 14,125,833.00 $ Other Funds 5,088.00

Total Georgia Public Telecommunications $ 14,130,921.00 $

Public Libraries

State Appropriation

State General Funds $ 35,051,419.00 $ Other Funds 4,522,400.00

Total Public Libraries $ 39,573,819.00 $

Regents Central Office State Appropriation


Research Consortium

State Appropriation

State General Funds $ 750,000.00 $ Tobacco Funds 750,000.00

Total Research Consortium $ 1,500,000.00 $

Special Funding Initiative

State Appropriation


Teaching

State Appropriation

State General Funds $ 54,623,286.00 $ Federal Funds

American Recovery and Reinvestment Act

Federal Stabilization Funds 169,566.00 Other Funds 31,224,111.00

Total Teaching $ 86,016,963.00 $

Total Operating Activity $ 184,844,685.00 $

Actual amounts were prepared on a prescribed basis of accounting that demonstrates

compliance with budgetary statutes and regulations of the State of Georgia, which is a


-38-

Amended Final Appropriation Budget

30,441,017.00 $ 30,441,017.00 $

2,393,133.00 $ 2,393,133.00 $

13,462,630.00 $ 13,462,630.00 $ 5,088.00 5,088.00

13,467,718.00 $ 13,467,718.00 $

33,649,362.00 $ 33,649,362.00 $

7 ,334, 708.00 6,500,000.00

40,984,070.00 $ 40,149,362.00 $

5,783,997.00 $ 5,783,997.00 $

750,000.00 $ 750,000.00 $ 0.00 0.00

750,000.00 $ 750,000.00 $

3,249,524.00 $ 4,736,915.00 $

42,618,045.00 $ 51,076,445.00 $

27,867,968.00 7,479,155.00 53,788,420.00 48,838,928.00

124,274,433.00 $ 107,394,528.00 $

221,343,892.00 $ 205,116,670.00 $

Current Year Revenues

30,441,017.00

2,393,133.00

13,462,630.00

0.00

13,462,630.00

33,649,362.00

5,911,770.93

39,561,132.93

5, 783,997.00

750,000.00

0.00

750,000.00

3,236,915.00

51,076,445.00

7,477,292.13

40,325,904.56

98,879,641.69

194,508,466.62

SCHEDULE "4"

Excess (Deficiency) Funds Available Compared to Budget Expenditures Compared to Budget of Funds Available

Prior Year Adjustments and Total Variance Variance Over/(Under) Carry-{)ver Program Transfers Funds Available Positive (Negative) Actual Positive (Negative) Expenditures

$ 0.00$ 0.00$ 30,441,017.00 $ 0.00$ 30,441,017.00 $ 0.00 $ 0.00

$ 0.00$ 0.00$ 2,393,133.00 $ 0.00$ 2,393,133.00 $ 0.00 $ 0.00

$ 0.00$ 0.00$ 13,462,630.00 $ 0.00$ 13,462,630.00 $ 0.00 $ 0.00 0.00 0.00 0.00 -5,088.00 0.00 5,088.00 0.00

$ 0.00$ 0.00$ 13,462,630.00 $ -5,088.00$ 13,462,630.00 $ 5,088.00 $ 0.00

$ 0.00 $ 0.00$ 33,649,362.00 $ 0.00$ 33,647,266.18 $ 2,095.82 $ 2,095.82 0.00 0.00 5,911, 770.93 -588,229.07 5,911,770.93 588,229.07 0.00

$ 0.00$ 0.00$ 39,561,132.93 $ -588,229.07 $ 39,559,037.11 $ 590,324.89 $ 2,095.82

$ 0.00$ 0.00$ 5,783,997.00 $ 0.00$ 5, 775,270.98 $ 8,726.02 $ 8,726.02

$ 0.00$ 0.00$ 750,000.00 $ 0.00$ 750,000.00 $ 0.00 $ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

$ 0.00$ 0.00$ 750,000.00 $ 0.00$ 750,000.00 $ 0.00 $ 0.00

$ 1,500,000.00 $ 0.00$ 4,736,915.00 $ 0.00$ 4,576,141.93 $ 160,773.07 $ 160,773.07

$ 0.00$ 69,620.33 $ 51,146,065.33 $ 69,620.33$ 51,076,228.44 $ 216.56 $ 69,836.89

0.00 0.00 7,477,292.13 -1,862.87 7,477,292.13 1,862.87 0.00 21,125,160.17 -69,620.33 61,381,444.40 12,542,516.40 38,891,710.08 9,94 7,217.92 22,489,734.32

$ 21,125,160.17 $ 0.00$ 120,004,801.86 $ 12,610,273.86 $ 97,445,230.65 $ 9,949,297.35 $ 22,559,571.21

$ 22,625,160.17 $ 0.00$ 217,133,626.79 $ 12,016,956.79 $ 194,402,460.67 $ 10,714,209.33 $ 22,731,166.12

-39-


STATEMENT OF CHANGES TO FUND BALANCE BY PROGRAM AND FUNDING SOURCE

(NON-GAAP BASIS) BUDGET FUND


Geor&la Health Sciences University Hospital and Clinics

State Appropriation

State General Funds

Georgia Military College

State Appropriation

State General Funds

Geor&la Public Telecommunications State Appropriation

State General Funds Other Funds

Total Georgia Public Telecommunications

Public Libraries

State Appropriation State General Funds

Other Funds

Total Public Libraries

Re&ents Central Office State Appropriation

State General Funds

Research Consortium

State Appropriation

State General Funds

Tobacco Funds

Total Research Consortium

Special Fundln& lnltletlve State Appropriation

State General Funds

Teach In& State Appropriation

State General Funds Federal Funds

American Recovery and Reinvestment Act Federal Stabilization Funds

Other Funds

Total Teaching

Total Operating Activity

Prior Year Reserves Not Available for Expenditure

Inventories Uncollectible Accounts Receivable

Budget Unit Totals

Actual amounts were prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which Is a


$

$

$

·40·

Beginning Fund Balance/(Deficlt)

July 1

0.00 $

0.00 $

0.00 $

0.00

0.00 $

7,733.01 $

0.00

7,733.01 $

7,165.00 $

0.00 $

0.00

0.00 $

1,500,317.62 $

172,654.75 $

0.00 21,125,160.17

21,297,814.92 $

22,813,030.55 $

197,453.15

39,716.59

23,050,200.29 $

Fund Balance

Carried Over from Prior Period

as Funds Available

0.00$

0.00$

0.00 $

0.00

0.00$

0.00$

0.00

0.00$

0.00 $

0.00$

0.00

Return of Fiscal Year 2010

Surplus

0.00$

0.00$

0.00 $ 0.00

0.00$

-7,733.01 $ 0.00

-7,733.01 $

-7,165.00 $

0.00 $

0.00

Prior Period Adjustments

0.00

0.00

0.00

0.00

0.00

1,746.86

0.00

1,746.86

0.00

0.00

0.00

--------~0~.00~$ ________ ~0.~00~$ ____ ~0.=00~

-1,500,000.00 $ -------=·3:.:1:;,;7 ·:::;62~$ 17,186.81

0.00$ ·172,654.75 $ 92,800.16

0.00 0.00 0.00

·21,125,160.17 0.00 7,125.33

·21,125,160.17 $ -172,654.75 $ 99,925.49

·22,625,160.17 $ -187,870.38 $ 118,859.16

0.00 0.00 0.00

0.00 0.00 0.00

-22,625,160.17 $ -187,870.38 $ 118,859.16

SCHEDULE "5"

Excess (Deficiency) Early Return of Funds Available Ending Fund

Other Fiscal Year 2011 Over/(Under) Balance/(Deficit) Analysis of Ending Fund Balance Adjustments Surplus Expenditures June 30 Reserved Surplus/(Deficit) Total

0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00

0.00 $ 0.00 $ 0.00$ 0.00 $ 0.00 $ 0.00 $ 0.00

0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 $ 0.00 $ 0.00$ 0.00 $ 0.00 $ 0.00 $ 0.00

0.00 $ 0.00 $ 2,095.82 $ 3,842.68 $ 0.00 $ 3,842.68 $ 3,842.68 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 $ 0.00$ 2,095.82 $ 3,842.68 $ 0.00 $ 3,842.68 $ 3,842.68

0.00 $ -8,726.02 $ 8.726.02 $ 0.00 $ 0.00 $ 0.00 $ 0.00

0.00 $ 0.00$ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00

0.00 $ -17,186.81 $ 160,773.07 $ 160,773.07 $ 159,637.78 $ 1,135.29 $ 160,773.07

0.00 $ -143,018.44 $ 69,836.89 $ 19,618.61 $ 0.00 $ 19,618.61 $ 19,618.61

0.00 0.00 0.00 0.00 0.00 0.00 0.00 -40,807.01 0.00 22,489,734.32 22,456,052.64 22.456,052.64 0.00 22.456,052.64

-40,807.01 $ -143,018.44 $ 22,559,571.21 $ 22.475,671.25 $ 22,456,052.64 $ 19,618.61 $ 22.475,671.25

-40,807.01 $ -168,931.27 $ 22.731,166.12 $ 22,640,287.00 $ 22,615,690.42 $ 24,596.58 $ 22,640,287.00

40,807.01 0.00 0.00 238,260.16 238,260.16 0.00 238,260.16 0.00 0.00 0.00 39.716.59 39.716.59 0.00 39.716.59

0.00$ -168,931.27 $ 22,731,166.12 $ 22,918,263.75 $ 22,893.667.17 $ 24,596.58 $ 22,918,263.75

Summary of Ending Fund Balance Reserved

Departmental Sales and Services 6,691,739.30 6,691.739.30 Indirect Cost Recoveries 639,729.60 639,729.60 Restricted/Sponsored Funds 8,490,587.97 8,490,587.97 Uncollectible Accounts Receivable 39,716.59 39.716.59 Inventories 238,260.16 238,260.16 Property Sale 6, 793,633.55 6, 793,633.55

Unreserved Surplus 24,596.58 24,596.58

Total Ending Fund Balance -June 30 22,893,667.17 $ 24,596.58 $ 22,918,263.75

-41-


REVENUES

State Appropriation

Federal Funds

Other Funds

Total Revenues

CABBY-OVEB EBQM PRIQB YEMlS

Transfers from Reserved Fund Balance

Total Funds Available

EXPENDITUBES

Advanced Technology Development

Center/Economic Development Institute

Agricultural Experiment Station Athens and Tifton Veterinary Laboratories

Cooperative Extension Service

Forestry Cooperative Extension

Forestry Research


SCHEDULE OF APPROVED BUDGET YEAR ENDED JUNE 30, 2011

FINAL

ORIGINAL APPROVED

APPROPRIATION BUDGET

$ 1,923,161,990.00 $ 1,811,374,050.00

23,186,142.00 0.00

3,319,119,332.00 4,683, 7 40,258.00

$ 5,265,467,464.00 $ 6,495,114,308.00

0.00 1,500,000.00

$

$

$ 5,265,467,464.00 $ 6,496,614,308.00 $

$ 21,109,317.00 $ 19,884,886.00 $ 73,920,508.00 90,319,893.00

4,944,522.00 7,633,077.00

55,724,403.00 63,4 77,863.00

963,721.00 1,158,134.00

6,693,471.00 12,704,265.00 Georgia Health Sciences University Hospital and Clinics 31,709,393.00 30,441,017.00 Georgia Military College 2,424,555.00 2,393,133.00

Georgia Public Telecommunications 14,130,921.00 13,467,718.00

Georgia Radiation Therapy Center 3,625,810.00 3,625,810.00 Georgia Tech Research Institute 155,029,215.00 231,784,765.00

Marine Institute 1,267,266.00 1,539,577.00 Marine Resources Extension Center 2,628,939.00 3,054, 733.00 Payments to Georgia Cancer Coalition 10,354,093.00 9,652,634.00

Public Libraries 39,573,819.00 40,149,362.00 Regents Central Office 5,998,764.00 5, 783,997.00 Research Consortium 16,740,062.00 15,140,552.00

Skidaway Institute of Oceanography 5,44 7,212.00 6,106,116.00 Special Funding Initiative 16,854,211.00 17,572,084.00

Teaching 4, 783,469,826.00 5,906,637,486.00

Veterinary Medicine Experiment Station 2,763,992.00 2,653,432.00 Veterinary Medicine Teaching Hospital 10,093,444.00 11,433,774.00

Total Expenditures $ 5,265,467,464.00 $ 6,496,614,308.00 $

See Notes to the financial statements

-43-

SCHEDULE "6"

LESS:

BUDGET

TRANSFERS

TO OTHER UNITS TOTAL

1,670,580,551.00 $ 140,793,499.00

0.00 0.00

4,620,917,087.00 62,823,171.00

6,291,497,638.00 $ 203,616,670.00

0.00 1,500,000.00

6,291,497,638.00 $ 205,116,670.00

19,884,886.00 $ 0.00

90,319,893.00 0.00

7,633,077.00 0.00

63,477,863.00 0.00

1,158,134.00 0.00

12,704,265.00 0.00

0.00 30,441,017.00

0.00 2,393,133.00

0.00 13,467,718.00

3,625,810.00 0.00

231,784,765.00 0.00

1,539,577.00 0.00

3,054, 733.00 0.00

9,652,634.00 0.00

0.00 40,149,362.00

0.00 5, 783,997.00

14,390,552.00 750,000.00

6,106,116.00 0.00

12,835,169.00 4,736,915.00

5, 799,242,958.00 107,394,528.00

2,653,432.00 0.00

11,433,77 4.00 0.00

6,291,497,638.00 $ 205,116,670.00

BOARD Of REGENTS OF THE UNIVERSilY SYSTEM OF GEORGIA UNNERSilY SVSTEM OFFICE (OVERSIGHT UNIT)

SCHEDULE OF ALLOTMENTS TO UNITS OF THE UNIVEASilY SVSTEM OF GEORGIA YEAR ENDED JUNE 30, 2011

ADVANCED GEORGIA TECHNOLOGY HEALTH

DEVELOPMENT SCIENCES CENTER/ UNNERSilY GEORGIA

ECONOMIC AGRICULTURAL COOPERATIVE FORESTRY HOSPITAL TECH

DEVELOPMENT EXPERIMENT EXTENSION COOPERATIVE FORESTRY AND RESEARCH

INSTITUTE STATION SERVICE EXTENSION RESEARCH CLINICS INSTITUTE

RESEARCH INSJITUTIONS

Georgia Health Science• University 30,441,017.00 Georgia lnatitute of Technology 7,808,944.00 5,866,807.00 Georgia State University

University of Georgia 35,212,885.00 $ 29,614,855.00 $ 535,535.00 $ 2,633,323.00

REGIONAl. UNIVERSITIES

Georgia Southern University Valdoata State University

SJAIE UNIVERSITIES

Albany State University Armatrong Atlantic State Univeraity Augusta State University Clayton State University Columbus State University Fort Valley State University Georgia College and State University Georgia Southwestern State University Kennesaw State University North Georgia College and State University Savannah State University Southern Polytechnic State University

University of West Georgia

STATE COLLEGE$

Abraham Baldwin Agricultural College College of Coastal Georgia

Dalton State College Gainesville State College Georgia Gwinnett College Gordon Col~ge Macon State College Middle Georgia College

TWO-YEAR COli EGE$

Atlanta Metropolitan College

Bainbridge College Darton College Eut Georgia College Georgia Highlands Col~ge Georgia Perimeter College South Georgia College Waycross College

QIIIEI!

Skidaway Institute of Oceanography

7,808,944.00 $ 35,212,885.00 $ 29.614,855.00 $ 535,535.00 $ 2,633,323.00 $ 30,441,017.00 $ 5,866,807.00

See notes to the financial atatements

-44-

SCHEDULE "7"

PAYMENTS MARINE TO VETERINARY VETERINARY

RESOURC£S GEORGIA SKIDAWAY SPECIAL MEDICINE MEDICINE MARINE EXTENSION CANCER RESEARCH INSTIME OF FUNDING EXPERIMENT TEACHING

INSTITUTE CENTER COALITION OONSORTIUM OCEANOGRAPHY INITIATIVE TEACHING STATION HOSPITAL TOTAL

275,000.00 8,943,223.00 $ 130,923,884.00 170,583,124.00 10,802,452.00 197,706,901.00 222,185,104.00

9,652,834.00 2,550,665.00 177,233,877.00 189,437,176.00 $ 749,746.00 $ 1,218,204.00 538,875.00 1,502,026.00 308,749,084.00 2,653,432.00 $ 433,774.00 383,841,739.00

76,676,117.00 76,676,117.00 45,940.783.00 45,940,783.00

296,584.00 18,634,103.00 16,930,667.00 27.780,646.00 27,780,846.00 24,203,315.00 24,203,315.00

162,493.00 22,481,482.00 22,843,975.00 31,662,207.00 31,662,207.00

1,225,247.00 19,744,930.00 20,970,177.00 28,703,565.00 28,703,565.00

157,748.00 11,389,599.00 11,547,347.00 223,560.00 73,543,695.00 73,767,255.00

21,739,968.00 21,739,968.00 296,564.00 17,366,945.00 17,663,509.00

20,284,279.00 20,284,279.00 42,993,711.00 42,993,711.00

123,304.00 12,679,541.00 12,802,845.00 12,738,935.00 12,738,935.00 13,094,814.00 13,094,814.00 19,347,681.00 19,347,681.00 31,908,828.00 31,908,828.00 10,682,968.00 10,682,968.00 27,595,389.00 27,595,389.00 15,305,356.00 15,305,356.00

7. 778,657.00 7,778,657.00 8,447,534.00 8,447,534.00

14,035,772.00 14,035,772.00 6,180,471.00 6,180,471.00

13,569,415.00 13,569,415.00 128,000.00 52,783,645.00 52,911,845.00

6, 705,246.00 6, 705,246.00 3,450,157.00 3,450,157.00

1,302,592.00 898,749.00 2,201,341.00

$ 749,748.00 $ 1.218,204.00 $ 9,652,634.00 $ 14,390,552.00 $ 1.302,592.00 $ 12,835,169.00 $ 1,554,962,249.00 $ 2,653,432.00 $ 433,774.00 $ 1. 710,311,718.00

·45·


ANALYSIS OF PRIOR YEAR'S SURPLUS FUNDS COLLECTED FROM INSTITUTIONS YEAR ENDED JUNE 30, 2011

RESEARCH INSTITUTIONS

Georgia Health Sciences University Georgia Institute ofTechnology Georgia State University University of Georgia

REGIONAL UNIVERSITIES

Georgia Southern University Valdosta State University

STATE UNIVERSITIES

Albany State University Armstrong Atlantic State University Clayton State University Columbus State University Fort Valley State University Georgia College and State University Georgia Southwestern State University North Georgia College and State University Savannah State University Southern Polytechnic State University University of West Georgia

STATE COLLEGES

Abraham Baldwin Agricultural College College of Coastal Georgia Dalton State College Gainesville State College Georgia Gwinnett College Gordon College Macon State College Middle Georgia College

TWO-YEAR COLLEGES

Atlanta Metropolitan College Bainbridge College Darton College East Georgia College Georgia Highlands College Georgia Perimeter College South Georgia College Waycross College

Skid away Institute of Oceanography

See notes to the financial statements

-46-

$

SCHEDULE '8'

COLLECTED

31,768.83 122,528.11 612,816.79 227,085.58

45,968.40 541,279.33

57,714.75 438.00

3,725.16 9,580.01

66.64 10,973.55

1,674.70 6,231.12

112,922.69 26,055.35 39,861.96

31,958.33 7,354.88 7,491.52 2,952.38

18,298.09 11,427.12

2,008.41 136,215.64

95,660.64 48,373.17 12,926.09

9,529.79 13,993.97

582,866.81 19,451.58

1,707.91

831.75

$ ==2;;;•;;;;85;,;3;,;;, 7;.:;3;;,9;;,.0,;.5



ANALYSIS OF EARLY REMITIANCE OF CURRENT YEAR SURPLUS FUNDS COLLECTED FROM INSTITUTIONS


RESEARCH INSTITUTIONS

Georgia Health Sciences University

Georgia Institute of Technology

Georgia State University

University of Georgia

REGIONAL UNIVERSITIES

Georgia Southern University

Valdosta State University

STATE UNIVERSITIES

Augusta State University

Clayton State University

Columbus State University

Georgia College and State University

Kennesaw State University

North Georgia College and State University

Savannah State University

Southern Polytechnic State University

University of West Georgia

STATE COLLEGES

Dalton State College

Gainesville State College

Georgia Gwinnett College

Gordon College

Macon State College

Middle Georgia College

TWO-YEAR COLLEGES

Atlanta Metropolitan College

Bainbridge College

East Georgia College

Georgia Highlands College

Georgia Perimeter College

Waycross College

$

SCHEDULE '9'

COLLECTED

161,645.91

207,774.73

169,106.70

45,948.74

4,638.13

800.00

18,315.91

4,891.54

13,879.92

46,578.97

534.32

3,350.70

3,387.43

1,250.01

13,271.00

4,630.89

11,302.74

131.57

2,077.28

23,405.03

7,713.14

32,806.18

1,048.81

416.00

3,109.85

137,857.39

5,804.00

$ ===9=2=5=,6=7=6.=8=9

See notes to the financial statements

-47-


Totals per Annual Supplement

Accruals

June 30, 2011 June 30, 2010


June 30, 2011 June 30, 2010

Adjustments

BOARD OF REGENTS OF THE UNIVERSITY SYSTEM OF GEORGIA UNIVERSITY SYSTEM OFFICE (OVERSIGHT UN In

RECONCILIATION OF SALARIES AND TRAVEL YEAR ENDED JUNE 30, 2011

SALARIES

$ 27,668,926.75

17,629.37 -81,933.00

2,811,161. 77 -2,979,192.00

SCHEDULE "10"

TRAVEL

$ 387,054.44

Shared Services on Jointly Staffed Personnel -279,7 45.68

Unidentified Variance 1,332.79

$ 27,158,180.00 $ 387,054.44 =========

-49-

SECTION II

AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS


AUDITEE'S RESPONSE SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS


PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FS-472-10-01 FS-472-10-02

CORRECTIVE ACTION/RESPONSES

Partially Resolved -See Corrective Action/Responses Previously Reported Corrective Action Implemented

ACCOUNTING CONTROLS (OVERALL) Inadequate Internal Controls over Payroll Consolidation and Outsourcing Project Finding Control Number: FS-472-10-01

Fiscal Affairs Division of the Board of Regents initiated a remediation plan to specifically address payroll accounting and reconciliation. The plan is comprised of 4 phases that focus on completing the payroll accounting model and delivering tools to rapidly reconcile payroll. The first three phases of the plan have been deployed. Eight hands-on and four web based workshops have also been provided to institution personnel.

PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

No matters were reported.

SECTION Ill

CURRENT YEAR FINDINGS AND QUESTIONED COSTS


SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2011

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

COMMUNICATION OF INTERNAL CONTROL DEFICIENCIES

The auditor is required to communicate to management and those charged with governance control deficiencies identified during the course of the financial statement audit that, in the auditor's judgment, constitute significant deficiencies or material weakness.

A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affect the University System Office's ability to initiate, authorize, record, process, or report financial data reliability in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the University System Office's financial statements that is more than inconsequential will not be prevented or detected by the University System Office's internal control.

A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the University System Office's internal control.

Any identified deficiencies in internal controls that we did not consider to be significant deficiencies and/or material weaknesses have been communicated to management and those charged with governance within a separate management letter dated December 20, 2011. Internal control deficiencies identified during the course of this engagement that were considered to be significant deficiencies and/or material weaknesses are presented below:

EMPLOYEE COMPENSATION Inadequate Internal Controls Significant Deficiency Finding Control Number: FS-472-11-01

Condition:

Criteria:

Questioned Cost:

Information:

Cause:

The University System Office did not maintain adequate internal controls to ensure the accuracy of employee compensation (salaries).

The University System Office's management is responsible for designing and maintaining internal controls that ensure employee compensation payments are properly calculated, disbursed and documented.

N/A

A review of internal control procedures over the employee compensation process revealed that individuals responsible for ensuring the accuracy of payroll amounts did not adequately monitor the payroll wages disbursed during the entire fiscal year.

The deficiency was the result of the weaknesses in the design of the internal controls over employee compensation.

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SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2011

FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

EMPLOYEE COMPENSATION Inadequate Internal Controls Significant Deficiency Finding Control Number: FS-472-11-01

Effect:

Recommendation:

This deficiency could result in errors in financial reporting and increase the risk of material misstatement in the financial statements including misstatements due to fraud.

The University System Office should implement appropriate procedures to strengthen internal controls to properly monitor employee compensation.

FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

No matters were reported.

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Documents

2011-472-Board of Regents of the University System of GA Audit